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Arizona has beckoned homebuyers for decades. Sadly, for current buyers, the state is now in the throes of being an extreme seller’s market, which has sent buyers scrambling to score a house. Record home prices continue to climb, and the inventory remains at an all-time low. With supply down, buyers are struggling to find a home that is not only within their budget but also fits their specific requirements. In this guide, we will explore a few tips for buying a home in Arizona’s seller’s market.
Why is Arizona a Seller’s Market?
Since the onset of the COVID-19 pandemic, a nationwide real estate seller’s market has occurred. However, Arizona is leading with spiking home prices. Buyers are fueled by record-low mortgage rates and a need for a change with many home shoppers carrying out home searches online in an effort to relocate.
A seller’s market is lucrative for real estate agents and sellers, but it costs homebuyers time and money as they face long waits to find the perfect house and increased prices. Many buyers find themselves having to modify their ‘must-have’ criteria in an effort to at least score a home because most homes that come up for sale have an offer, or many, within 24 hours of hitting the MLS. At the time of this writing, even as we go into the winter months, the trend is not slowing down.
Tips on Buying a Home in Arizona During a Seller’s Market
Prepare to Pay Over Asking Price
A seller’s market is almost like a bidding war. A home buyer has to prepare to pay over the asking price of a home. In fact, the asking price is really just the starting point. Houses are often going for $10,000 to $50,000 above the asking price as a multitude of offers flood in over a coveted property. If you are a home buyer, then you need to think about your budget and shop well below your cut-off number so you can offer more. You’ll need to determine exactly how high you are willing to go to win a home in a seller’s market.
You should always be pre-approved for a mortgage before shopping for a home - in fact, most agents won’t even show you a house without a letter of pre-approval. Also, you should obtain pre-approval for at least $50,000 more than you want to spend because you’ll face a real estate bidding war in Arizona, and you’ll need to have the cushion to make any sort of serious offer and stand strong against the competition.
If you expect to spend $500,000 then obtain a letter for pre-approval for $550,000 above what you expect to spend.
Having a letter of pre-approval for over and above the amount shows the seller that you will be able to close on the home easily because you can afford more than you are buying, and you have not topped out your finances. It basically gives the seller peace of mind. They can pick your offer over someone who is toeing the line by having a letter of preapproval for the exact offer amount which might indicate they have no additional funds if necessary to close the deal in a timely manner.
Cash is King
Yes, when buying in a seller’s market cash is king. It’s hard for a buyer who needs financing to stand up to an investor with a pocketful of cash. Also, if you have ample cash, then a lender sees you as less of a risk if you need to finance some of the purchase price. A seller likes to see a buyer with cash because they seem stable, and a seller knows that if a small thing should be revealed during an inspection, then a cash buyer won’t get as upset. Cash buyers tend to make fewer demands and accept small imperfections.
If you have adequate money to put down on a home during a purchase then you are in a much better position to make a strong offer, reduce the appraisal risk and score a far better interest rate.
Cash buyers who plan to purchase entirely with cash are in a highly competitive position. However, a cash buyer will not score a lower price or a better deal in a seller’s market. Instead, a cash buyer’s offer is just stronger than an offer where the buyers must seek financing. With cash, the seller’s risk is reduced because the appraisal contingency and the financing contingency are removed and no longer a part of the contract.
Get Ready to Act - Speed is Crucial
In a seller’s market, a buyer cannot sit around on their laurels as they try to make a decision. While you are riding the fence trying to decide if you want to buy the home then someone else will swoop in and cinch the deal. Most contracts in Arizona are accepted within six days of the home being listed so you don’t have a lot of time to make a decision.
Speed matters when you are gearing up to make an offer during a seller’s market in Arizona. You should be working with an experienced agent who is always aware of other offers, knows when all offers are due, and has a good idea of the competition.
Reduce Seller’s Risk
When it is NOT a seller’s market a buyer has the luxury of negotiating closing costs and repairs. However, with a seller’s market, the dynamics have changed and now the power is entirely in the hands of the seller. A buyer has to actually sweeten the deal such as being willing to waive appraisal continues, purchase a home as-is condition, or use escalation clauses to better push their position. If you are willing to forego a few things then even if you are a non-cash buyer, you might still be able to come out ahead.
Nowadays, in Arizona, a buyer has to be ready to submit about two-five times the number of offers that they did pre-2020. The landscape of the consistent demand and limited inventory is not forecast to change any time soon. You’ll want to ensure you work with an aggressive agent who can effectively and quickly negotiate a deal. It is imperative that you do not partner with an agent who takes their time submitting offers or you are going to miss out on the home you want to buy.
Use an Escalation Clause
Escalation clauses are used only in a strong seller’s market. Prior to 2020, many new agents weren’t even familiar with escalation clauses. Basically, an escalation clause is a buyer’s way of letting the seller know that they are willing to increase their offer by $500 or more if a competing offer comes in. They will increase the offer to a specified amount. This is a way to gain a much-needed edge in the highly competitive seller’s market and is being used frequently by experienced agents in Arizona.
Many sellers require extra days after closing to move out of the home. Offering them extra days in the home is great to come out ahead of the competitive offers. The sellers will appreciate the extra time and will probably look more favorably on your offer compared to another offer that is demanding immediate vacancy or is not being as generous on a time allotment.
If the home is vacant, then many sellers want to close fast. If you can offer a fast close, then the seller is probably going to be happier. Closing early can save the seller a substantial amount of money overall so an early close can definitely put your offer in the lead position.
Seek the Help of an Experienced Agent
Buying a home during a seller’s market in Arizona is not for the faint of heart. It’s going to take work and perseverance. You’ll want to work with an experienced real estate agent who is familiar with the area and the current state of the market. Your agent should also know about housing loan lenders so you can receive the guidance needed throughout the entire home buying process.
Change Your Expectations
Home shopping is an exciting experience, and you shouldn’t allow yourself to become discouraged. One of the keys to success is to be open to change. It is going to take time and you might have to modify your requirements. Maybe you will have to lower your square footage needs, the number of bathrooms, neighborhoods, or other aspects because of the limited supply of homes available.
If the offer you make on a home is turned down, don’t let that stop you. Move on to the next offer and continue forging ahead. Eventually, you’ll find a home to fit your needs even in a strong seller’s market in Arizona.
If you are in the market for a new home or would like to list your home for sale give us a call at 480-387-3990 or fill out our contact form above.