Between the pent up demand and low inventory, this year is shaping up to favor sellers in the housing market—something not seen in about six years.

Data from real estate website Zillow shows housing inventor y in the U.S. is down close to 18% from last year, which means competition for homes on the market is severe. Stories of bidding wars and all-cash offers are plentiful in some markets, and are forcing buyers to play offense.

“It varies by market, but in certain areas, like in the Bay Area or Orange County [in California], there is fierce competition for homes,” says Jani Strand, a spokeswoman for real estate company Redfin. “The majority of homes in areas like this are receiving multiple offers—and not just a handful—dozens in many cases.”

According to Strand, 69% of the offers Redfin agents submitted in January were multiple-offer situations, up from 53% in 2012. In the Bay Area, 94% of all the offers were competitive. In Washington D.C., one house got 138 offers.

Areas with strong or rising school districts with close proximity to a major metro area are also seeing increased demand from buyers. According to Strand, the top 10 hottest neighborhoods for 2013 are all in neighborhoods located in or near cities such Los Angeles, San Diego, Chicago, the Bay Area and Seattle. And they all share the same attributes: shrinking selection, rising sales and increasing prices.

Sellers who have been sitting on the sidelines for the past few years waiting for a recovery are welcoming the news, but experts say they will still need to put in some effort to sell their home.

“Yes, bidding wars are happening in many places, but that only happens if a home generates a lot of buyer interest. To get a lot of buyer interest, sellers need to correctly price their home from the get go,” says Jill Simmons, a spokeswoman for Zillow. She advises sellers do their homework and review how much homes in their area recently sold for and how long they were on the market.

Since sellers like to be in a multiple bid situation, it’s a good idea to find an agent that has experience dealing with numerous offers and knows the area. Experts recommend interviewing two or three agents before choosing one and checking out online reviews before hiring anyone. 

Buyers may not be in the position they were in for the last three years, but that doesn’t mean they have to over pay on a new home. They just need to be better prepared. Experts suggest having their finances and mortgage application in order and to be ready to act quickly on a home.

To get an edge, Strand at Redfin suggests buyers accompanying your offer with a personal cover letter explaining why they want the house and even include family photos.

“Whether you are a buyer or a seller, it’s important to understand what’s happening in your local market so you understand what to expect going into negotiations and so you can strategize accordingly,” adds Simmons.

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