There’s no denying that there’s a severe housing shortage right now. Houses are selling within hours of being listed, for thousands over asking price. Some may claim we’re either in or headed for a real estate bubble, but what does that actually mean? And what other factors could be causing such a competitive housing market right now?
Real Estate Bubble Explained
A real estate bubble happens when there is a rise in housing prices that is fueled by demand. It usually starts with an increase in demand when the supply is limited. Eventually, the demand decreases while supply increases, which results in a sharp drop in prices, and the bubble bursts. You may remember the housing bubble in the 2000s, and when that burst.
Current Housing Market Conditions
Many are now able to work from home either full- or part-time, which means prospective homebuyers will continue to seek larger homes with more space and invest in things like home offices and gyms. With this shift to working from home, there is a continued demand for larger spaces.
The younger generation is also entering the housing market, ready to buy homes and start families. And with record-low interest rates, it’s no wonder so many people are in the market for a home. The low mortgage rates are motivating buyers to enter the market, which is also increasing demand.
Currently, selling a house is easy. They’re going for well over asking price and selling within hours. Housing values continue to rise, and many first-time home buyers are being priced out.
So, what could bring the current housing market to a halt? Housing prices and values can’t go up forever, and mortgage rates are likely to increase slightly, which should help the housing market level out.
How the Current Market is Affecting Real Estate Agents
What does low inventory mean for your buyers? It means there’s less time to think about a house – an offer has to be made almost immediately. Some things your buyers must consider include:
- Sacrificing wants. Most buyers have a list of wants and needs when looking for a home, but with the market the way it is, that list may have to go down to needs only. Upgrades can always be made over time, but if they want a house that meets most of their needs, they have to offer on it right away.
- Change the location. If the desired location is too competitive and there are no homes available, your buyers should consider expanding the area where they’re looking for homes. There may be a neighborhood outside of their desired area that is more affordable and has homes available.
- Get preapproved. It’s important to be preapproved for a mortgage before house hunting anyway, but when the market is as competitive as it is now, it’s even more important. Being preapproved means your buyer knows what they can afford, and you can help them write an offer immediately.
Buyers may also start dropping out of the market because there’s a lack of affordable homes for sale. Most buyers don’t want to have to make such an aggressive offer to beat out the competition. They know what their budget is, and they know they can’t afford to go any higher. If enough buyers drop out of the market, it will eventually level off.
Real Estate Commissions
Real estate commissions have fallen as homes are flying off the market. Commissions tend to decline in a strong seller’s market, like the one we’re in now. On a $400,000 sale, a typical 6 percent commission split is $24,000, giving each agent their 3 percent share at $12,000. The decrease in commission comes as homes are selling quickly and for more than asking price, which gives sellers the ability to negotiate with their real estate agent on commission.
In a more difficult market when homes are sitting for longer periods of time, clients are usually willing to pay agents a higher commission rate to help make the sale happen. But when houses are selling in record time, for record amounts, clients see less of a need to pay their agents a higher rate so they can keep more of the profit.
But that doesn’t mean you should get discouraged. The commission rate is usually negotiated when you first meet with a client. You will write up a contract for working together before you’ll start showing houses or making arrangements to sell. So if it states in your contract that you will get 3 percent commission on the sale of the house, then you’re guaranteed a 3 percent commission. If the house sells for $50,000 over asking, that could mean more in your pocket!
The seller negotiates a fee with the listing agent, which is typically 2-3 percent of the sale price of the home. The seller also decides how much to pay a buyer’s agent. As an agent, you only get paid once the deal is done, which is why you always want to help your client close a sale.
Consumers are pushing for better deals on everything, which includes the commission fees. Because there are so few homes on the market, agents may also be willing to lower their fees to be part of the sale. There are a lot of real estate agents, and not many homes, so real estate agents also need to be competitive with their fees.
Bottom Line
There is a very real inventory shortage right now, which is affecting both home buyers and real estate agents. Houses used to sit on the market for days, and now it’s just a matter of hours before they get snapped up. People are “panic buying” and waiving contingencies, like home inspections, just to get the house. Eventually the market will level off, and we’ll see an increase in housing supply, and a decrease in demand. This is a great opportunity to understand the peaks and valleys of real estate!
And if you’re ready to start an exciting career as a real estate agent, PDH Real Estate can help! We offer everything you need to not only pass the state exam, but to launch a successful career. Contact our enrollment specialists at 866-492-1867 or staff@pdhrealestate.com.
