By Reid Buckley
Buying a home is a challenging endeavor at any time, but never more than now since it is overwhelmingly a seller’s market. We have not seen this many multiple offers — in all price ranges — for more than 30 years. However, there are several strategies buyers can use to try and gain an advantage in this super-competitive environment. The first step is to identify an agent who is very experienced in the type of housing you want; a knowledgeable agent can mean the difference between having the winning bid or not.
Since this is a team effort, another important person is your loan officer (if you are going to finance your home purchase). The usual procedure is for the loan officer to provide a “pre-qualification” letter. This means you have discussed your financial situation with a mortgage officer and he/she has determined the amount you could qualify to pay each month based on your income. A more serious review involves submitting your information via a mortgage application, including documentation, and would result in a “preapproval.” This is a MUCH stronger position for you to present to sellers who are likely considering multiple offers.
Make your best offer on the first round. In a multiple offer situation, sellers choose the combination of terms that best suits their goals so there is almosat never a chance for an updated & improved offer. One search strategy is to look at homes that are at 90% of your total budget so your offer can include a strong escalation clause of up to 10%. Terms that could make your offer shine above the rest could include a higher than usual deposit. Often agents suggest a 1% deposit, so if you can provide a 2.5% deposit (or even more), that will be looked on favorably. Other terms that can help is to limit the time for a home inspection or, if you feel comfortable about the home’s condition, eliminate the home inspection altogether. Some buyers make their offer “as is with inspections and right to terminate” meaning they can get out of the contract if they are concerned with what is found during the inspection period. This is where the experienced agent can help — navigating which combination of terms would be best for your particular financial situation.
Another strategy for securing the winning bid is to waive the appraisal contingency. This doesn’t mean you can’t apply for and receive a loan; it does mean that if the appraised value is less than the contract price you will be responsible for the difference. Again, an experienced agent can help you determine how your prospective home purchase compares to similar homes that have recently sold. Since sales prices are sometimes exceeding even last year’s prices, sellers are wary of taking contracts at a record-setting price only to find out the appraisal is short. If you choose this strategy, make sure you have funds set aside to make up any difference if the home doesn’t appraise for the full contract price.
Finally, there are some “softer” terms that may provide an added incentive for sellers to accept your offer, including no-cost rent back. Allowing the sellers an extra two weeks to move, after settlement and at no cost, may give them a greater peace of mind than a small difference in price on two competing contracts. Ask your buyer’s agent to speak with the listing agent to determine the sellers’ preference for settlement before writing an offer.
One of the phrases that came up often in business school was “Cash is King.” While a cash offer has a lot of appeal to sellers, there are strategies buyers who require financing can use to be just as competitive. Make sure your agent and lender have the extensive knowledge and proven experience to help you prepare the strongest offer possible, and you can develop a winning combination of terms. It may not happen on the first try but don’t give up!
Reid Buckley, MBA, is a licensed real estate agent and waterfront specialist with The Mr. Waterfront Team of Long & Foster Real Estate. She can be reached at 410-266-6880 or via email at [email protected].
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