The past few years have been a good time for home sellers. A high demand for homes, paired with limited inventory, pushed home prices to record highs in 2021 and 2022. This all set the stage for a seller's market in which homebuyers have had to go above and beyond if they want to get an offer accepted. At the time of this writing, the average home value in the U.S. is just over $339,000, according to Zillow data. That's up 3.3% over the past year—and it typically takes less than two weeks for sellers to accept an offer.
Buying a house in a seller's market can be tough, but it's not impossible. Here are some helpful tips to increase your leverage.
What Is a Seller's Market?
A seller's market is when there aren't enough available homes to keep up with buyer demand. This gives sellers the advantage and makes buyers compete harder for homes. It's the opposite of a buyer's market, where sellers are at a disadvantage and buyers can easily buy a home or nab a bargain price.
Bidding wars in a seller's market can lead to offers that are well above asking price. Buyers may even agree to waive certain contingencies to stand out from other offers, especially when up against cash buyers. A seller's market is characterized by:
- Low inventory
- Houses selling quickly
- High home prices
- Sellers getting many offers to choose from
6 Ways to Succeed as a Buyer in a Seller's Market
1. Have Strong Credit
Your home offer won't be worth much if you can't get approved for a mortgage—and your credit score is a critical factor. The minimum credit score required can vary depending on the lender and loan type, but here's what you can generally expect:
| Loan Type | Minimum Credit Score |
|---|---|
| Conventional loan | 620 |
| Jumbo loan | 700 |
| FHA loan | 500 |
| VA loan | 620 |
| USDA loan | 580 |
Getting your credit ready for a mortgage can help put you in the best position to get approved. A strong credit score can also qualify you for a more competitive interest rate on your home loan. Here are some simple action items:
- Check your credit reports and credit scores . Review your reports and get caught up on any past-due accounts you might have. You also have the right to dispute any information you believe to be in error that might be on your reports.
- Pay all your bills on time.Your payment history is a key component of your credit score.
- Avoid applying for new credit.This affects your debt-to-income ratio (DTI), which can impact your mortgage application. The hard inquiry that results from credit applications also is likely to lower your credit score by a few points.
- Pay down debt.Reducing your debt load can improve your DTI and increase the odds of getting approved for a mortgage.
2. Have Your Down Payment and Closing Costs Ready
Your down payment is the amount you pay upfront when buying a home. Unless you're making a cash offer, the rest is typically financed with a mortgage. Down payment requirements vary depending on the loan type and lender. Putting down 20% is the gold standard, but not required―anything less usually requires mortgage insurance. A larger down payment also translates to a smaller home loan and lower monthly payments. Here's a look at general down payment guidelines:
| Loan Type | Minimum Down Payment |
|---|---|
| Conventional loans | Less than 5% |
| FHA loans | 3.5% |
| VA loans | 0% |
| USDA loans | 0% |
On top of your down payment, it's also wise to set aside 2% to 5% of the home price to cover closing costs, such as lender fees and the cost of your home inspection.
3. Make a Competitive Offer
When competition is thick, making an appealing offer might help you stand out from the crowd. An experienced real estate agent who understands your local market can provide helpful guidance. They'll likely evaluate comparable recent sale prices ("comps"), current market conditions and the home's expected appraisal amount to determine a competitive offer.
In March 2023, over 28% of homes sold for more than their listing price, according to Redfin. Just be sure that your offer fits into your homebuying budget. Overbidding could also create an appraisal gap. This happens when the offer exceeds the home's appraised value. In this situation, your lender may require you to cover the difference.
Besides offering more money, you could also look for other ways to sweeten the deal. Some sellers are looking for a very quick closing, and having a lender capable of doing that could be beneficial. You could even offer a rent-back agreement that allows them to briefly stay in the home after closing and finish moving.
4. Take a Close Look at Contingencies
There are other ways buyers can get a leg up in a seller's market. One option is to waive some contingencies. These can be related to the home inspection, property appraisal, financing and more. Contingencies allow you, the buyer, to back out of the deal if certain requirements aren't met, and doing away with them can allow for a more seamless closing for the seller.
But it's important to remember that contingencies are there to protect the buyer. For example, you may regret waiving the home inspection contingency if you discover later on that the home needs significant repairs.
5. Partner With the Right Real Estate Agent
A skilled real estate agent can help buyers navigate a seller's market. They should understand the local landscape and be able to guide you in making a competitive offer. The right real estate professional can also negotiate with the seller on your behalf and help you through the closing process. What's more, their fees are covered by the seller.
6. Get Preapproved for a Mortgage
Mortgage preapproval can help prevent delays when buying a home. It mirrors the process of applying for a mortgage. Lenders will review your:
- Personal information
- Credit history
- Credit score
- Debts
- Income
- Assets
- Employment history
- Tax returns
Once you're preapproved, the lender will provide a letter stating your expected loan amount and interest rate. This can help clarify what you can afford—and show sellers that you're ready to go. Just be aware that you'll still have to complete a formal mortgage application (and get approved) before receiving financing.
How to Decide if Now Is the Right Time to Buy
How long the current seller's market will last remains unclear, but the National Association of Realtors suggests that things are gradually changing. Prices are slowly declining, and inventory is inching upward. Meanwhile, mortgage rates remain higher than they were in previous years. This all suggests that a buyer's market may be on the horizon.
But the real estate market isn't always predictable. Whether you should wait things out depends on local market conditions and your finances. If you come across your dream home and are financially able to make the purchase, you might not want to wait. Just keep in mind that a higher interest rate means a larger monthly payment and higher costs overall.
All that being said, buying a home is a huge financial decision. If home prices feel out of reach right now, waiting for the market to cool down probably makes sense. You could improve your credit or save more for your down payment in the meantime.
The Bottom Line
A seller's market can present unique challenges for buyers. Limited inventory, high home prices and increased competition come with the territory. That doesn't mean you can't find a great home, but knowing what to expect can help you decide what's best for you.
When you feel ready to buy a home, your credit score will be an important factor. Strong credit can make it easier to get approved for a mortgage—and with the best interest rate. You can check your credit score and credit report for free with Experian.