Buyer in a Hot Sellers Market? 8 Tips to Make your Offer Competitive
Buying a new home in a hot seller's market can be frustrating. Facing the crowds at weekend open houses, going up against multiple offers, and having prices shoot up well above the asking price in bidding wars are all common during the process. Here are eight tips to help you increase your chances of closing on your dream home in a seller's market.
Obtain a Financing Pre-qualification Letter or Proof of Funds Letter
Having this information readily available will help you better understand your budget and allow you to submit an offer immediately once you find the home of your dreams.
It can take as little as an hour or as long as a few days to obtain a pre-qualification letter depending on your bank and financial situation, so it's best to complete this before beginning your home search.
Know What You Want & Be Ready to Act Fast
Have your list of needs and wants prepared. Make sure your needs are within your budget for the market. Needs should be non-negotiables, and wants should be things you would like to have but could live without or possibly add to the property later after purchasing, such as bathroom or kitchen upgrades or a pool.
This list should be discussed with your agent to understand what you're looking for. A good agent will also help you understand if these wants and needs are realistic and within your budget.
With your search criteria defined, you should not hesitate to make an offer on a home that meets all of your needs. However, make sure you do not jump the gun at the same time. A well-informed agent can advise you and provide the facts to help you make an informed decision.
Make Your Offer as Clean as Possible
Try to put as few contingencies in the contract and no seller concessions if possible.
With many properties in today's market receiving multiple offers, buyers should avoid certain contingencies in the contract, such as a Sale of Buyer's Property Contingency or Appraisal Contingency that can delay or cancel contracts without penalty.
Seller concessions are also discouraged, if possible, as it will be hard to compete against other offers from buyers that may show a stronger financial position.
Put a Larger Down Payment on Your Loan
Placing a larger down payment on a property will show you are in a stronger financial position than competing offers that are not paying cash. A strong financing offer with a high down payment can also compete strongly against cash offers that may have less appealing terms to the seller.
A larger down payment than required by your bank can also show a seller that the buyer can cover any potential difference between an appraisal price and the offer price. This is an important issue because home prices are likely to be rising at a more rapid pace than homes may appraise for.
Put Down a Stronger Escrow Deposit
An escrow deposit is proof of good faith from the buyer that they want to purchase the home. The escrow deposit goes towards the down payment of the property and is typically between 1% and 3% of the purchase price.
The more money you put down can show the seller you are more serious about purchasing the home. If you have your heart set on a particular property and you truly want to purchase it, put down more money in escrow than typical, but only if you truly intend to buy the home. Be cautious — the buyer's escrow money can be lost if the buyer does not perform according to the sales contract.
Add an Escalation Clause to Your Contract
An escalation clause means your offer can outbid other offers up to the maximum price you set. This is helpful to pay less money than you are willing to pay for the property while going up against multiple offers. Understand that the seller can still counter your offer, so you will be revealing the maximum amount you are willing to pay for the property.
Know the Seller's Needs
Your agent should be gathering information on the property you want to purchase and find out what the seller's needs are. Knowing the seller's needs can help your offer stand out above the rest.
Does the seller need to close quickly to close on another property they are purchasing? Does the seller need to stay in the property for a few more months while finding another place to live?
Being proactive and knowing the answers to questions like this can help make your offer more attractive.
Pay with Cash
"Cash is King." Cash will show a very strong financial position and put the buyer and seller in more control over performance within the contract. A cash deal avoids appraisals that are likely to be required by banks and possible inspection issues that banks and insurance companies may create delays over.