Surviving an Extreme Sellers Market

  • David Becker
  • 06/3/22

For the past several years, we have experienced nearly unprecedented appreciation in local home values and have largely been in a seller's market.  When Carin and I started in the real estate business, it was essentially a balanced market, if not even leaning a little towards a buyer's market.  In fact, our first ever listing at 60 Auburn Drive, Annville in Olde Stone Way took EIGHTY-TWO days to sell.  For an adequately priced, pristine, four-bedroom, Palmyra home, this would have been unheard of over the past five years.  I would argue in 2015, we were still coming out of the tail end of the 2008-2009 housing crisis that rippled across America.  Looking back even before we were Realtors, Carin and I tried unsuccessfully for over six months to sell her old home in Lebanon, then once we finally did - we had numerous choices in the Palmyra area and ended up getting our old home at 447 Graystone Court, Palmyra for a decent chunk under the listing price - this was in 2010.  

Lately, over the past 5+ years, sellers have controlled the market.  In 2017-2018, we started seeing quicker sale times with our listings and for the first time started seeing homes consistently sell for full price or more; even seeing some with multiple offers - little did we know, this would become the "norm".  In 2019 things started really heating up and homes were quick to sell and buyers were at times writing letters to sellers, waiving inspections, or offering to pay some of the seller's closing costs to get their deals accepted.  Then, the Covid-19 pandemic hit in early 2020 and showings of homes were banned by the governor from mid-March to mid-May 2020.  And believe it or not, we still sold 8 homes during the shut down period, with some of our buyers not seeing their home for the first time till settlement day!  From nearly the moment the real estate market reopened in May, the floodgates opened.  There simply weren't enough listings to meet buyer demand.  In addition, after being trapped in their homes for months with schools and workplaces going virtual, homeowners and renters alike started to realize they needed or wanted more space, a different layout, or more land.  In addition, as things evolved, a shocking number of people were granted permission to work from home - from anywhere.  This provided an opportunity for people to relocate from where they lived for their jobs (either far away or in higher cost of living areas) to be back "home" near family, or where the cost of living was lower or the school systems were stronger.  Plus, remember - throughout most of 2021, interest rates hovered around 3%, near the lowest rates in history.

Having an incredible number of buyers versus available listings led to fierce competition during this period.  Strategies evolved consistently.  First, buyers picked up where they left off but then became more and more aggressive.  Escalation addendums became commonplace, then home inspections were waived a majority of the time, then a strategy of buyers offering to pay the sellers' 1% transfer taxes quickly morphed into a new strategy of buyers offering to pay more than the appraised value of the home.  

(Traditionally, nearly all purchase agreements had an "appraisal contingency" included - meaning that the buyer could ask for a price reduction if the appraised value came in less than the purchase price, or even terminate the contract as a result.  Often times back then, the seller would have to come down if the home didn’t appraise, or the buyer and seller would renegotiate the deal.)

This was almost unheard of.  We saw buyers (tons of them), committing to pay $5,000, $10,000, $20,000 or more above the appraised value if there was a deficit between that value and the final contract price.  By including this with their offer on the front end, the buyers' offer would stand out to the sellers because it came with less risk and a better chance of more guaranteed money to the seller.  Then we saw other strategies like buyers willing to settle on the home quickly and letting the sellers stay in the home for a period of time in a rent back scenario; sometimes the buyers even let the sellers stay for free.  It became very challenging for buyers to get a home, especially first-time buyers and those that weren't "conventional buyers".  Because most sellers would receive a pile of offers with each listing, buyers with loan approvals that were viewed as potentially more complicated programs like USDA, FHA,  VA, etc found themselves at an extreme disadvantage.  

Think of the times where you could look at homes till your heart was content and when you found the perfect home - you could decide to buy it without the pressure of having to pay more than list price and compete with other buyers. This time was no more.  During this period, buyers would look at almost any home that was in their price range or big enough for their family and try to make it work; then realizing they would have to compete and pay over list price to even have a chance.  There was a year-long run where inspection contingencies were almost an impossible hurdle to overcome as a buyer.  Sellers would simply discard the buyers' offer if they asked to have a home inspection contingency.  This was not because the sellers were unreasonable or had something to hide, but because they had several other offers that were willing to waive those same inspections on the very same house.  

Eventually, we saw strategies become even more extreme.  Huge good faith deposits were being offered (we personally saw up to $100,000) and buyer and seller agents obsessed over "clean" offers; ones with as few contingencies as possible.  It became fairly common for buyers to waive all contingencies on the agreement - even the mortgage contingency, when their purchase was indeed contingent upon getting a mortgage!  This strategy previously had been almost exclusively reserved for legitimate cash buyers, but now the message the buyers were sending to sellers was "I am so confident in my ability to get financing for your home, I am waiving the contingency and guaranteeing the purchase of your home - or I will sacrifice my (usually high) deposit".

The sellers were in control of every aspect of this market.  They decided when they were listing their home, how long they would allow showings for, when they would implement an offer deadline, and to a certain degree - they even dictated the terms.  Some homes would disappear only a few hours after hitting the market because the sellers received an offer they could not refuse.  Other sellers would keep their home on the market for an extended time just to try to get as many offers as possible - hoping to drive up the price.  Homes that were already priced high still received multiple offers and went for more than list price.  Then, when they "failed" appraisal, buyers would often pay the difference, thus creating a potential comp for the next sale's appraisal - raising prices higher with each cycle.  It was an interesting, but extremely challenging time to be in real estate.  Buyers were being pushed outside of their comfort zones and almost forced to do things they never have wanted to do.  There was constant rejection on the buyer side, paired with nearly constant elation on the seller side. (Trust me - it was great to be on the listing end.  We had as many as 20 offers on homes, easy-contingency-free sales, record breaking prices, and we have gone over two years straight without an expired listing; everything sold, and we were heralded as heroes.)  There were sellers who were in their homes for very short times that were still selling and walking away with a boatload of equity.  The vast majority of our listings had multiple offers and sold for over list price, it was extremely uncommon for this not to happen.  In fact, I'm fairly certain we went a year and only had a buyer or two get a home without having competition or paying above list price.  Almost every buyer competed for every home and almost every buyer paid more than list price to win, that’s just the way it was.

As we progress through 2022 and interest rates quickly moved from 3% to the current 5%+, the market has begun to fade just a little.  Record breaking inflation along with other economic concerns have forced some buyers out of the market, but real estate is still a hot commodity in many areas including Elizabethtown, Palmyra, Hershey, Hummelstown, and most of Harrisburg, Annville, and Lebanon.  As I write this article, we have a "Coming Soon" listing at 1808 Stoneford Lane, Palmyra that listed this morning.  This home has a Palmyra address, but is in East Hanover Township in Lower Dauphin schools district.  The sellers literally bought the home one year and five days ago for $352,500.  After just a few hours marketed as “coming soon”, we have ten showings lined up and agents inquiring as to when offers will be due - at a listing price of $389,900, $47,400 higher than just a year ago.  

Navigating this quickly changing market has more-so than every increased the need for each buyer and seller to pair themselves with a knowledgeable, committed real estate agent or team.  At Team Becker Realtors, Carin and I pride ourselves on having closed over 500 transactions in the past 7 years and value our reputation, client referrals, and repeat business.  We will do everything in our power to represent you to the best of our ability whether you hire us to help you buy or sell.  Learn more at www.teambeckerrealtors.com.

 

Good luck out there.

 

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