The same story is heard again and again: here in Calfornia the housing inventory is decreasing and demand for homes are on the rise. But what should sellers do and what should buyers do in this market? I’d like to offer some tips and tricks that buyers and sellers can use.

Sellers:

1. Get your home informally valued by a Realtor. The Realtor will use active, pending, and sold data to suggest what your house will sell for in the open market. In some ways the Realtor’s report can be more accurate than appraisals. Appraisals are mostly backward looking, which means if there is a strong uptrend in price, they cannot account for that. Realtors, on the other hand, can use active and pending data to make adjustments to price.
2. Manage the showings. Houses in today’s market will be like revolving hotel doors. Make sure you set the showing times and make sure people show on time. Seller still occupying the house need their privacy, too, and don’t want to deal with no shows.
3. Choose the highest and best offer. While this applies in any market, it’s likely you might get presented with 20 offers. You can’t just choose the highest price; you need to choose the offer with the best terms. If a deal can close faster or with cash, you’re reducing the amount of risk by accepting that offer.
4. Be careful about how you respond to backup offers. While you might want to hold an offer in backup, you need to do it correctly. If you accept another offer in backup, that backup might have priority to other incoming offers. If those incoming offers are superior to your backups and you committed to a backup, you’re stuck. But if you don’t get incoming offers, you need to somehow make the backups stick around for you. Talk to your Realtor to choose the best plan of action.

Buyers:

1. Be mentally prepared to overbid on well-priced properties. Ask your Realtor to value the house, then determine how much anticipated competition there will be on the house. Decide how much you want the house based on your wants, needs, and means, and make your offer appropriately. It’s rather clear that if you keep getting beat by other offers, you need to get your price up and your terms clean.
2. Increase your down payment. Needless to say, cash is king and cash offers will beat out financed offers most of the time, so you need to find a way to make your offer more attractive. Increasing your down payment gets you closer to the goal.
3. Partner with other buyers in a syndicate. If you partner with other people, you might be able to make cash offers on investment property. Five people with $20,000 don’t have as much power as an LLC offering $100,000. Be creative and it’ll work out.
4. If you really want the house and overbid, remove the appraisal contingency. Basically, sellers don’t want to deal with buyers who will ask sellers to pay for the difference when their financed offer does not appraise at the purchase price. If you want to be a strong buyer, remove your appraisal contingency and be prepared to pay the difference in the appraisal. Make sure you have enough funds to this, and most importantly, make sure you want to do it. The Realtor can estimate how much the difference might be and it varies case by case. Make sure your other contingencies protect your deposit. That’s another noteworthy topic worth discussing with your Realtor.

Thanks for reading and I hope you have gained some insight on how to behave in a market with dwindling seller inventory (particularly the one we’re experiencing in the bay area).