Many people discovered in 2005 just how challenging buying a home could be. That year saw a record number of homes sold in both the United States and Canada—many at record prices. In some major markets, particularly in the suburbs of large cities, driveway bidding wars erupted. Offers were submitted to homeowners at open houses, only to be quickly topped by competing buyers.
All the usual real estate norms were thrown out the window during the 2005 housing boom. Sellers were encouraged to aim high with their asking prices, and buyers were advised to make offers immediately on any home they liked. Even the traditionally underwhelming tactic of the open house became wildly successful for sellers during this time.
The Seller’s Market
What happened that year is known as a seller’s market, which typically arises from a combination of the following factors:
- **Low housing inventory**: Fewer homes are available for sale—either they’re being sold before hitting the market, or homeowners aren’t interested in selling. Additionally, new construction slows down. This is common in areas where land use has reached capacity.
- **Low interest rates**: These rates play a crucial role for homebuyers. Lower interest rates—often influenced by a nation’s financial policy—mean buyers pay less in mortgage interest over time. Even a 1% drop in interest can equate to thousands of dollars saved on a home loan, motivating more people to buy.
It’s important to note that seller’s markets don’t apply to all real estate sectors. Even during the explosive growth of 2005, some regions across the country didn’t experience significant price increases. Housing prices are highly regional, so one strategy for avoiding a heated market is to look in areas considered less desirable by the majority.
Buying in a Seller’s Market
One unique aspect of a seller’s market is its self-sustaining nature. Lower interest rates attract more buyers, which leads to even fewer homes on the market. As a result, buyers need to do some legwork before they start viewing homes—and they must be ready to act quickly once they find one they like.
Preparing Ahead of Time
Before you begin house hunting in a seller’s market, there are a few essential steps to take:
Get pre-approved for a mortgage. Pre-approval shows sellers that you already have financing in place. In a competitive bidding situation, offers without proof of funds are often immediately dismissed.
Have a strong down payment. Some real estate experts suggest that a larger down payment may help your offer stand out, though the exact benefit to the seller may vary.
Work with a qualified real estate agent. In a hot market, many homes sell before they’re even officially listed. A well-connected agent will know what’s available—and what’s coming soon. Agents also understand market trends and can help you decide how much to offer. Bid too high, and you risk overpaying. Bid too low, and your offer may be dismissed without consideration.
Finding a House
Once your preparations are complete, it’s time to hit the market. Start by browsing listings online and talking with your agent about properties in your price range. Be ready to move fast on anything that interests you—but don’t let urgency cloud your judgment. Take the time to walk through each property and assess whether it truly offers good value.
It’s smart to go into the process with a firm maximum budget in mind—and stick to it. While you may be able to obtain assistance through a co-signer or a personal loan, remember that any borrowed money must eventually be repaid.
Some buyers have tried unconventional methods to gain an edge. Writing personal letters to sellers is one approach, though its effectiveness is debated. If you do write a letter, keep it respectful and not overly personal. Others have offered bonuses—such as TVs or vacation packages—sometimes arranged through loyalty programs or corporate discounts.
You Could Always Wait
Some buyers choose to wait, hoping the frenzy will settle down. Historically, real estate markets do cool off, and competition eventually eases. However, waiting has its risks. Home prices are unlikely to decrease significantly, and interest rates could rise again. If that happens, those who haven’t yet entered the market may find themselves priced out altogether.
