It’s no secret that we are in a strong seller’s market right now. Housing inventory is low, home prices are up and mortgage rates are down. Most houses put on the market will receive immediate attention from many buyers. Sellers will receive multiple competitive offers. As a home buyer, you must do what you can to make your purchase offer the best one in the seller’s eyes.
Here are some tips home buyers can utilize in a multiple-offer market
Higher than Asking Price
The sellers will set an “asking price,” but it’s pretty common for the house to sell above asking in a hot seller’s market. As a buyer, you can get your offer to stand out by offering an amount that’s above their asking price. It’s a good place to start your negotiations.
Escalation Clause and Cap
This is a great technique. You add an escalation clause to your offer. If another offer comes in above your price, it automatically escalates your offer to match. This way, you are always the first and best offer on the table. You will also want to put a cap on this escalation clause to make sure you never go beyond what you are willing to pay.
Mortgage Pre-Approval (Reduced Financing Contingency)
No home buyers can even contend in today’s market without getting a pre-approval letter from a reputable mortgage lender. The lender will collect all financial documents in advance and perform “pre-underwriting” processes to prove that the buyer is in good shape for an approved loan amount. This shows stronger financial standing and less risk, while also presenting the shortest possible financing contingency (usually 8-15 days). These are details sellers want to see when getting multiple good offers.
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Buyer Pays Closing Costs
In many home sales in average markets, the seller will pay a bulk of the closing costs (real estate commissions, title transfer fees, home inspections/appraisals, etc.). If the buyer offers to pay all or some (at least their half of the fees) of these closing costs, it will be really attractive to the seller.
You can also offer to apply 2% or more of “earnest money” toward your closing costs, again reducing the seller’s responsibility for covering certain closing costs.
Offer to Buy in As-is Condition
You can always offer to buy the house in as-is condition. This does not mean you have to waive home inspections (which is another aggressive option, but also a very risky move). It just means you are willing to look past any repairs that may need to be made. This could be attractive to sellers, but obviously presents more risk to the buyers.
Shorter Due Diligence Period
All real estate contracts will contain a due diligence deadline that allows the buyers to walk away at any point up to that date. If you move up that deadline date and make the period as short as possible, it may help your offer stand out more. Again, this puts more risk in your corner as a buyer.
You can offer an appraisal gap. This means that if the home does not appraise for contract price, you will pay additional cash to cover the difference between your final approved mortgage amount (which will be affected by the appraisal) and the original contracted offer amount.
There are some other steps you can take to shorten the closing process. You will want to talk to your lender, real estate agent, the seller and the title representatives to develop a specific plan for your particular transaction.
“Delayed possession” is when a seller is allowed to stay in their home after closing—until their next home is ready for them to move into. This may be an attractive offer option depending on the seller’s situation, though the buyer will want to protect themselves as much as they can. You don’t want to get stuck in a position where you can never get the sellers out of the house!
Last but not least, you can offer “option money.” This is essentially a bonus payment from the buyer to the seller. If the seller accepts their offer, the buyer receives X amount of dollars on top of the deal.
How to make the most of your offer in a seller’s market
As a buyer in a fast-moving seller’s market like this, you have to be aggressive and strategic when putting together your home purchase offers. This is what it takes to make sure your offer stands out among many other potential buyers. However, you also have to be very careful that you are not giving up too much or putting yourself at risk. There is a downside to every single one of these strategies listed above. Always weigh the pros and cons. Be aggressive and decisive, but don’t leave yourself in a bad situation by offering more than you can handle.
Writing a good offer in a competitive market is not easy. That is why it helps to have an experienced real estate agent and mortgage lender on your side. To get started with your mortgage pre-approval and to discuss specific offer strategies for your home purchase, contact Moreira Team today!