Just the thought of attempting to purchase a house in today’s sellers market is enough to cause many of us a great deal of stress. And while this market is unpredictable and sometimes difficult to navigate, many of us still find ourselves downsizing, expanding, relocating and otherwise in need of a new home. While listing agents are currently flying high with increased attention to their listings, many buyer’s agents are frustrated with additional hours spent crafting the perfect offer, only to get shot down and have to repeat the process over and over again for their buyers. The shortage of houses and higher than ever before valuations do mean the home buying process is more complicated than ever before, but there are still things you can do as a buyer to make sure your offer stands out and has advantages over the competition.
Communicate with the Listing Agent
Ask your agent to call the listing agent to find out exactly what the seller wants and needs. Money may not be the only thing a particular seller is looking for. An offer of $20k over the listing price may be the most important thing to your particular seller, but other terms could be exactly what they need to choose your offer over the next one. Even in a competitive market like the one we are experiencing now, sales fall through, and sellers want to know when they accept an offer that the process will move along seamlessly. If you can craft your offer to sound like exactly what they want, you immediately have an advantage over the competition.
Your agent should ask specific questions such as “What is the single most important thing to your seller, other than the price?” or “What is the exact date your seller ideally wants to be out of the home?” Once you know more about the seller’s specific situation, you and your agent can write an offer that includes extra concessions such as a free “rent back” period whereby the seller remains in the home for a period of time after closing, or an extended deadline for removing large personal items such as a pool table or hot tub. If your offer can calm the nerves of a seller worried about timelines and specialized moving needs, your offer could look as attractive if not more so than a more lucrative but less flexible offer.
Arm Yourself with a Proper Approval Letter
Ask any seller what their biggest concern is when they are deciding which offer to accept and they will almost always tell you it involves the buyer’s financing. This is the reason that cash offers almost always win out over any other – cash never falls through. It used to be that before beginning your home search, you only needed a pre-approval letter in order to put in an offer. Now, rather than simply being pre-approved for your home loan, it is best to have your loan fully underwritten before you even consider making an offer on a home. This means working closely with your lender from the very beginning, as a first step rather than later on during the process. Going this route can be time consuming, but removing any sort of financing contingency from your offer is almost a necessity in today’s market.
In a heavily competitive sellers market, buyers must move very quickly once they find a house they want to make an offer on. There is no time to hammer out the details of financing once an offer is already on the table, and truthfully, a seller has no reason to accept your offer if it is accompanied by only a pre-approval rather than a fully funded loan from a reputable lender. When your agent is writing an offer on your behalf with a strong approval letter, it allows you to have a shorter financing contingency time with more emphasis on the appraisal contingency and inspection period instead
Consider an As-Is Home Inspection Contingency
What is almost as stressful to a seller as a buyer’s financing falling through? An extended repair period with many expensive changes needed based on the home inspection. Because of this, more and more offers are being made on homes “as-is” whereby the inspection is conducted, but no back and forth negotiating over repairs follows. To make your offer stand out, ask your agent to use wording regarding the home inspection that indicates it is “for informational purposes only.” Then it is up to you how you want to handle the possible outcome of the home inspection. You can submit a truly “as-is” offer whereby no repairs are significant enough to invalidate your offer. Or, you can include a contingency period after the results of the inspection are made available. During this period you as the buyer are able to decide whether or not to continue with the purchase. A period of no more than 48 hours is ideal. This means that when you receive the inspection report, you will have 48 hours in which to decide if you want to continue with the purchase of the home “as-is,” or if you would like to rescind your offer. Either way, the back and forth discussion over repairs is eliminated and the seller is not responsible for fixing any portion of the home. Sellers that are looking to offload an older home are likely to be particularly pleased with this sort of offer contingency.
However, this doesn’t mean that you will automatically be walking away from the deal. If your offer is more lucrative than others that have been received, the seller may still offer to make some of the repairs needed in order to close the deal. Also worth noting, the inspection may uncover issues that the seller is required by law to disclose to any other potential buyers. This puts them at a disadvantage when it comes to the next offer, so they may choose to make repairs in order to keep your offer alive, even if they are not required to do so.
Increase Your Earnest Money, Not Just Your Offer
Your earnest money deposit is your proof to the seller that you are making an offer in good faith. Traditionally, buyers have offered up an earnest money amount that was equal to 1% – 3% of the listed price of the home. To make your offer stand out, consider offering 5% – 10% instead. What purpose does this serve? In reality, additional earnest money doesn’t mean much to the seller in the long term. But seeing that higher amount at the top of the offer pile does tend to trigger a “warm fuzzy” reaction that can make the seller look more kindly on your offer. When you combine an increase in earnest money with a full lending approval and “as-is” offer, you appear firmly committed to the home and the transaction, alleviating even more worry for the seller.
Bring the Best Financing
Work closely with your lender to determine the best financing route for your situation. If you can avoid coming to the table with an FHA loan, you stand a far better chance of closing a deal. The appraisal dynamics and loan conditions are very different within the different varieties of loans, and when up against multiple offers, conventional almost always wins out over FHA, unless a significantly higher amount of cash is also on the table. If conventional is an option for you, that is the route you need to go.
Waive Your Selling Contingency
Unless you are purchasing your first home, you are likely in the market to purchase a home while also selling one. Because this happens so frequently, one of the most common contingencies seen in offers is a home sale contingency. These state that the purchase of the home you are putting the offer in on can only move forward once you’ve sold your current home. In spite of how common these contingencies are, in today’s sellers market, this contingency can send your offer down to the bottom of the list. Sellers want to know they are working with a qualified and serious buyer, and one with no complications attached. If all of their offers include this contingency it won’t be harmful to yours, but if even one attractive offer has no additional home sale involved, you’ll likely lose out on this house.
You have two options if you are willing to remove this contingency from your offer. First, you can bet on the sellers market and just assume that your house will sell. Doing this is definitely a risk, but one could argue that the risk has never been lower given how few available homes are on the market. If you are unable to sell your home prior to closing on the new one, you may be on the hook for two mortgage payments until you do have a successful sale. Your other option is to simply not make any offers on a new home until you do have a finalized sale of your first house. This could leave you temporarily displaced due to the differing timelines, or you could play the seller’s game with your offers and request a rent back time period whereby you rent your prior home back from your buyer. If your buyers are desperate to make the deal for your home work, this may be an easy solution.