A hot market, or one where homes get snapped up in less than two months, is every seller’s dream. Low inventory, high demand, and a fast turnaround rate give you the upper hand in negotiations.
But there are potential downsides to selling in a hot market. Here’s what you need to watch out for:
- Your home sells too fast – What happens if your home gets purchased while you’re still in the process of finding a new one? You might find yourself scrambling to look for a place to stay when you receive a great offer.
Make arrangements for temporary shelter, either with friends, family, or a local hotel. You can also try to get a lease-back agreement with the buyer, which allows you to rent the house from them during the leaseback period. Having a backup plan will keep you from rushing into a sale or passing up a good offer.
- You have a limited time period for 1031 – Section 1031 under the U.S. Tax Code allows you to sell an investment property and buy another one without having to pay taxes on the sale. But you’ll need to identify a property to purchase within 45 days.
Sellers in a hot market often have difficulty qualifying for deferred taxes because of this limited time period. The upside is that you’ll have 180 days to close – all you need to do is find a suitable property in 45 days.
- You expect extravagant offers – Selling in a hot market won’t automatically attract offers that match or exceed your asking price. Being too optimistic about the price can cause you to reject reasonable offers. Your home might end up staying longer on the market, go stale, and sell for less than the first strong offer that came along.
Try to manage your expectations, and give serious consideration to any reasonable and well-crafted offer you receive on the home.
- You get a low appraisal– It’s great to receive and entertain offers that exceed your asking price, but there could be problems in the off-chance that the house appraises lower than expected. Buyers might walk away from the deal altogether.
If this happens, you can pay for another appraisal. If the property still appraises low, you can try to renegotiate with the buyer.
- You get bad offers – Buyers can get in over their heads when home-hunting in competitive markets, and they might feel pressured to make promises they can’t keep. They may sign a contract only to have it terminated several weeks later. Your home could end up languishing in the market, dissuading other buyers from putting in an offer.
Vetting offers will help you distinguish qualified and serious buyers from those who aren’t. Likewise, be wary of buyers who haven’t been pre-approved for a mortgage.
Keeping these challenges in mind will help you avoid the common pitfalls of selling a home in a hot market. For more information, call Scott Haubrich at (612) 298-5400 or visit his seller’s page.