Now that the pendulum has swung back to a seller’s market, the rules have once again changed. Strategies that would likely have been effective a year or two ago no longer apply. In a seller’s market, there is intense demand by buyers for a diminished product—an insufficient supply of houses. This situation is obviously advantageous to most sellers and a challenge for a majority of buyers.

Here are some points to keep in mind

Today’s reality is temporary. Some buyers make the mistake of assuming that present conditions are permanent. This can lead to costly miscalculations. The market goes through cycles. The current climate will eventually evaporate.

As a buyer, think ahead to the time you might be selling. Despite fantasies of staying in your new home forever, circumstances unexpectedly change and you may need to sell sooner than you anticipated.

Prices rise quickly and decrease slowly. The last market frenzy occurred from 1987 through 1989. Most buyers who purchased in 1987 and 1988 did fine. A significant number of those who bought between 1989 and 1993, however, paid prices that, even today, translate to negative or zero equity.

It is preferable to buy at the beginning of the upturn. (See item above). The later into the hot market you buy, the greater your resale risk if the market slows.

Get pre-approved with a local lender. Pre-approved means your funds, debts, employment and credit history will be thoroughly researched and documented. The only remaining step will be the lender’s appraisal of the property once you have an accepted contract. This makes you a strong, serious buyer and will give the seller and his listing agent more confidence in your ability to perform and close the escrow.

In today’s market, multiple offer situations are common. Buyers with pre-approval letters from their lender have a greater likelihood of getting their offer accepted than those without this substantiation.

Do not confuse pre-approval with pre-qualification. Pre-qualification can mean nothing more than the fact that you had a conversation with a lender. It will not give you the advantage you need.

Use a local agent. A small percentage of buyers ignore this admonition, often to their detriment. Local agents know the territory and can provide in-depth information about neighborhoods, prices, schools, shopping, lenders, inspectors, tradespeople, and issues of concern in the specific area.

With homes selling quickly, it is difficult enough for local agents to preview new listings on a daily basis; for out-of-area Realtors, it is almost impossible. You will probably never even hear about some properties until it is too late. This was exactly the lament of a young couple who loved one of my recent listings. Working with an out-of-area agent, they only discovered it on their own after my “sold” sign went up.

Local agents hear about new properties coming on the market from their networking with other local agents. Had this couple been working with a local Realtor, they would have had a better chance of knowing about it in time.

Thorough home inspections are essential. If there is time, some agents will counsel their buyers to have a home inspection completed prior to making an offer when there is the possibility of multiple offers. The buyer can then write a contract with no inspection contingency, giving him an edge over competing offers which have included such a clause.

It is critical, nonetheless, to be careful not to get so caught up in the auction atmosphere that you discount the seriousness—spell that expense—of specific problems. Likewise, buying “As Is” should be done with caution.

One of the barriers to getting an inspection from a competent inspector is that the best ones are booked up one to two weeks in advance. This could leave you with a less experienced inspector. Be sure to ask questions about the inspector’s background, his professional affiliations, and his Errors & Omissions insurance coverage.

Understand pest control (termite) reports. If you are asked to accept a pest control report which was ordered by the seller, be sure it is no more than  six months old and was done by a respected, local company. Be aware of the difference between “Section One” and “Section Two” items in a pest control report. Section Two items that seem innocuous can cost you later if you accept responsibility without understanding the possible implications.

Act decisively, but not indiscriminately. Learn the market and neighborhoods of your interest. Go to open houses and see what is available. The more you have seen, the better decisions you will make. When you find a home you like in a fast-moving locale, be willing to write an offer that same day. Waiting will generally work against you and allow others time to jump in and bid.

How to handle multiple offers. When the market is very active, as it is now, agents often assume their listings in sought-after areas will attract more than one offer. They will then suggest to their sellers that offers not be heard until after the broker’s tour and first open house. If this is the case, you have no choice but to play by the seller’s rules and wait until the appointed day to present your offer.

In order to plan their best approach, buyers sometimes wonder how they can tell if there actually are other offers. Unfortunately, you cannot always know in advance. This is why it is so important to choose a competent, experienced real estate professional you trust. Your agent will be able to advise you on how to proceed.

If you like a house that is getting multiple offers, you first must decide whether to compete. Before you do, be clear that the property will probably sell for more than the asking price. If you are not convinced it is worth more than list price, or if you do not qualify for a higher-than-asking amount, you  should take a pass and not write a contract.

If you decide to join the fray, give it your best shot. In multiple offer scenarios, buyers do not always get a second chance to increase their bid. Bear in mind, however, that the offer chosen is not necessarily the highest. It is frequently the contract with the most qualified buyer who is offering the best terms and a price that is within range.

As an example, let’s say the asking price is $325,000. One offer is $340,000 with ten percent down and a thirty day close of escrow; another is $335,000 with twenty percent down, a forty-five day escrow and the option for the seller to lease back the home for thirty days after close of escrow. If the seller needs time to move or find another property, the terms of the second offer might be more attractive. In addition, the second buyer’s significantly higher down payment provides more security that he will be approved for the loan.

In this instance, the seller will probably either counter the price of the second offer (in which case the buyer could reject the counter and walk away), or simply accept the lower offer with the better terms. Make sure your agent asks why the seller is selling and what terms he needs before you write up your contract.

If you have written an offer without any competition and another offer surfaces at the last minute, the listing (seller’s) agent should give you the opportunity to adjust your offer if you so choose.

If the listing agent has a contract from his own buyer, make sure he does not represent the seller as well and listen to offers from other agents. This is a definite conflict of interest. Insist that the listing agent’s office manager handle the multiple offer presentation in order to ensure fairness.

Final thoughts

It is not easy to be a buyer in a seller’s market. Should you wait until the market cools down? What if that doesn’t happen for three years and prices have risen twenty-five to thirty percent? That could turn out to be an expensive decision. On the other hand, if interest rates continue rising, this seller’s market could become a memory.

If you do choose to be a player in this market, remember there are past trends and history to help guide you. Most of all, don’t forget the three most important words in real estate: location, location, location.

Related Articles: Hot Market Tips: Sellers; Understanding the Market; Buyers’ Do’s and Don’ts, Part 1andPart 2; Use Local Agent; Not Just Termites, Part 1 andPart 2; “As Is” Pointers, Part 1 and Part 2