If you’ve been on the sidelines waiting for the “right time” to make a home purchase, you may want to consider getting a jump on the Spring housing market. And that time is now. Did you just do a double-take thinking that December is too early to begin house hunting? Grab your cup of hot cocoa. This article is for you.
Gray Skies. Cold Temps – Why Winter is Just Right for House Hunting
With the start of winter around the corner, the “prime” real estate season may seem like months away. In fact, you may be already planning to continue with a “wait and see” home buying strategy until Spring arrives. In real estate, however, the Spring housing market traditionally begins prior to when the calendar says Spring is here. What does this mean, you might be wondering?
In Northern New Jersey, the Spring housing market begins right after Super Bowl Sunday, which in 2023 will be on February 12th. And instead of homes showcasing beautiful gardens in full bloom, there may be snow blanketing the property. Some sellers may even want to get ahead of the Spring market and put their homes on the market in January, which is in just a few weeks! Sound crazy? Let’s dig in.
Are You a “Winter Warrior”?
Let’s face it. Shopping for a home in winter is not for the faint of heart. You need to be serious. You need to have a strong sense of urgency. And you probably need a pair of snow boots if you’re going to be a “winter warrior“.
During December, January and February, the days are not very long with the sun setting early, around 5:00 pm. Add in the wintry weather, and you may find it challenging to go out and see a home for sale after the work day ends. This can be particularly inconvenient if you need to travel a far distance to see just one house. If you are unable to take time during the work day to see a property, most likely you would be looking at homes on the weekend. So why do this now rather than wait until the warmer weather? It’s all about ‘leverage“.
How “Leverage” is Helpful to Home Buyers
In your quest to find the home that is right for you, minimizing buyer competition is crucial. And if you are a “winter warrior”, you will be among a smaller buyer pool compared to the Spring market. This is good news. Fewer buyers translates to less competition. And less competition gives you “leverage”.
When buyers are more scarce, there is opportunity for the home buyer. The “winter warrior” will be looking closely at the housing inventory and taking their time to make a purchase decision. Unlike in the Spring, when there might be dozens of buyers pursuing the same property, there may be only a handful of buyers at most during the winter months who are competing for the same property. Gone is the frenzied multiple offer process typical of the Spring. If perhaps there is only one or two other buyers interested in the same house that you are, the odds are in your favor if you have a strong offer guided by the advice of an experienced realtor. A lot will depend, of course, on understanding the home’s list price and days on market. Let me explain.
What the Days on Market (DOM) Can Tell You
When shopping for a home in the winter, you will want to know the history of the home’s market activity. Is the home brand new to market or is it a “hold over” from the Summer or Fall? Generally speaking, the longer the home has been on the market, the greater the buyer’s leverage in home price negotiation.
For example. If a home is new to the winter market with 10 days on market (DOM), the seller may be holding firm on the asking price. On the other hand, if the house went on the market in October during the Fall market and it is now December and close to year end with over 60 days on market (DOM), the seller may be more willing to entertain an offer much lower than the asking price. And this gives the buyer leverage in crafting not only the offer price, but the offer terms as well.
Offer terms? The offer terms consist primarily of the purchase price, the down payment, the closing date, mortgage appraisal contingency, and here in Northern New Jersey, the home inspection terms. (In Northern New Jersey, the home inspection is conducted after a home is Under Contract.) During the recent 2022 Spring market when multiple offers were prevalent, some buyers were waiving all (or a portion) of the mortgage appraisal contingency and waiving all (or limiting) home inspection repair requests. During the winter, with less buyer competition, you can craft an offer that gives you the most favorable terms, especially if the DOM are high.
You might be thinking that the winter months are an ideal time to “get a bargain”. Consider this. If the house is new to market, and you want to make a “low ball” offer well below the asking price, that offer strategy might backfire even if it is in the winter. In contrast, if the house has been lingering on the market for 30 days without a price reduction, you might have greater negotiation leverage with the seller. In this case, a “low price” offer could encourage the seller to counter rather than dismiss it as too low. Days on market (DOM) gives you that much needed insight for crafting a winning offer.
What the Asking Price of a Home Can Tell You
Understanding the current asking price or list price of a home is key to formulating a successful offer strategy. In the winter months, homes that are brand new to market tend to be “priced to sell”. You’re probably wondering, “aren’t all homes priced to sell“? Let’s just say that selecting a list price is more of an art, rather than a science.
When the list price is formulated strategically, it serves as a “marketing tool”, designed to generate buyer interest to see the house in-person or virtually. And without showing appointments, there will probably not be any offers. When the home buyer frenzy erupted following the pandemic, the asking price of many homes was considered “aspirational“. Sellers were asking what seemed to be unrealistic prices, and yet getting multiple offers. It was truly head-spinning.
In contrast, the winter months are often a time when you have the most serious of homeowners putting their homes on the market. These sellers may be moving because of a job relocation, downsizing because they are empty nesters, upsizing to make room for a new baby or extended family, moving for health reasons, etc.
Whether the seller is new to market or has been on the market for months, the winter months are a time when the asking price tends to be more realistic and thus closer to the home’s value in the eyes of the potential buyer. The more serious the motivation of the seller, often the more realistic the price. A truly motivated seller wants to sell their home sooner rather than later. It is this sense of urgency by the seller that creates a window of leverage for the buyer when making an offer. This “window of leverage” increases when the seller has taken a price reduction.
How the “Window of Leverage” Can Increase for Home Buyers
As days on market (DOM) accumulate, there is a missed seller opportunity in capturing buyer interest. The result is that home sellers will begin “chasing the market“. How do they do this? By taking a price reduction in the list price. The original list price (OLP) gives way to a new list price (LP) with each price reduction.
The goal of the price improvement is essentially two-fold: (1) to refresh the property in the eyes of both potential buyers and realtors, and (2) to reposition the property into a different buyer group, hopefully catching new buyers who have not yet seen the property in their home search.
Price reductions are not only a “seller self-correction” whereby the list price started too high as perceived by home buyers, but a reveal about the seller’s motivation. You may be familiar with the scenario where one is looking to negotiate but the other party has their feet firmly planted and will not budge. However, once we see movement, large or small, we can see the door has opened for negotiation.
A seller who repositions the list price is letting buyers know they are open to negotiation.This gives the home buyer additional leverage in crafting an offer on the house. When a buyer sees a price reduction has been taken on a property, the seller is likely to be more receptive to your offer.
As winter approaches, we typically see an uptick in price reductions. Many sellers do not want to carry the house during winter, show the house with snow on the ground, and deal with a host of other potential inconveniences.
A Home for the Holidays?
If you have been waiting on the sidelines in 2022 or planning a home purchase in 2023, you will want to be actively looking now. As discussed above, the sellers are motivated, especially if the home has been lingering on the market since the Summer or Fall. The sellers will be more likely to negotiate as they begin to “chase the market” by taking price reductions. The buyer pool will be smaller so you will be competing with fewer buyers. This will help to reduce multiple offers, if any, to just a few rather a dozen or more.
Keep in mind that buyers who have not yet found a home, will combine with new buyersentering the market in 2023 due to a job change, rental lease expiration, new baby, etc. This will contribute to high buyer demand in 2023 facing once again, an inadequate supply of the move-in ready homes many buyers desire. And as buyer demand increases and outpaces supply, home prices will inevitably rise. The good news is that the 2022 market has shown signs of softening with overall modest growth in home prices compared to the prior year. In 2023, we can expect home prices to rise, so why not consider making a move for the holidays?
The winter “window of opportunity” during the months of December, January and February, can be an ideal house hunting time. You can optimize your buyer leverage before competition peaks in the Spring. During this time of year, sellers tend to be more motivated and open to negotiation on price and offer terms, especially in a climate of higher mortgage rates. By keeping in mind DOM and price history of the property, you will be well-positioned to get the house your heart desires at a price and offer terms that may pleasantly surprise you. Embrace the home buying journey…it might just lead you to a new home for the holidays and make you “jump for joy”.
Embrace the Home Buying Journey – Suzy Minken
Did you miss my last article? Here is the link: Timing is Everything in Real Estate – 5 Key Tips for Home Buyers
© 2022 Suzy Minken
My Bird’s-eye View
The Winter “Window of Opportunity” for Home Buyers – Why Shopping for a Home this Holiday Season Can Deliver You Joy