Landlord and Journalist, Laura Agadoni, cautions real estate professionals through her article on Trulia that, while a hot real estate market may seem to be the answer to a seller's prayer, there can be some sticky situations to wade through. Ralph McLaughlin, Trulia's Housing Economist, defines a "hot market" as one where homes sell faster than two months.
Agadoni identifies five scenarios where sellers tend to become problematic with a seller's market, and how the burden could be eased.
1. Your house sells lickety-split
Your house sells immediately but you are still looking for your next house. By hunting and buying another house, you become a buyer in a seller's market. Some savvy sellers, Agadoni describes, find a new house they want before having their current house listed on the market. However, in a seller's market, the dream house can sell before the current house does.
A Chicago real estate broker named Christine Lutz relates, "I always advise my sellers-turned-buyers to have a back-up plan, such as temporary housing. It's better to move twice than to feel rushed into a purchase." Gary Wheeler, a California real estate agent with Willis Allen, suggests a "lease back" wherein you will rent your house back from the new owner. This, while you continue searching for another home. However, it will depend on whether or not your buyer will agree to such a set-up.
2. The appraisal falls short
Kelly Hager, a Missouri real estate agent, explains that if the house's appraisal is low, "the buyer may walk away." In such cases, you may try re-negotiating the deal or to get a second appraisal.
3. Bad offers all around
There are buyers who fail to keep their promises during a buying frenzy. Sarah Bowles, a real estate agent from Denver, says that, "By not vetting offers, sellers may sit in a contract just to have it terminate three weeks later." Then buyers will start wondering what could be probably wrong with your house since it has been sitting for some weeks in a hot market. You will then need to skip offers that don't come with a mortgage pre-approval.
4. Trying to beat the 1031 clock
Agadoni tells that Section 1031 of the U.S. Tax Code allows you to sell one investment property and buy another investment property without paying tax on the sale. But you need to identify a property to buy within 45 days, while the closure should be done within 180 days.
According to the author of 'The Small Business Tax Guide', Crystal Stranger, "Sellers can find themselves in tough competition to buy a replacement property in the time needed to qualify the exchange to defer taxes."
5. Your big ego
Bruce Ailion, an Atlanta real estate agent, says that, "The biggest problem I see with sellers in a seller's market is being overly optimistic about price."
Sellers have the tendency to turn down an offer that is below their expectation even if that offer from a strong buyer is reasonable enough. Then what happens is that, according to Ailion, "The property remains on the market, becomes stale, and ultimately sells for less than the first strong offer."
McLaughlin gives the following points to consider if you plan to sell soon:
- Inexpensive homes sell fastest.
- The market picks up in the spring and dies down between August and October, extending through the winter, except for vacation homes in hot climates such as Arizona and Florida, where the market stays strong during winter.
- Although expensive, FHA loans enable people to buy a home with a down payment of as little as 3.5 percent.
