It’s no secret that it’s a strong seller’s market right now. There are far fewer homes on the market than there were over the last several years. Most homes sell within days of going on the market. Most of these homes get multiple competing offers and sell for more than the asking price. I’ve seen homes with 5, 10, and 20 offers. Sometimes more.
Unfortunately, only one of those offers will get the home. The rest of the frustrated home buyers will have to wait for the next one to come along and compete again.
So, what can you do if you’re thinking of buying a home soon? Be prepared. Know that it’s going to be competitive (and frustrating). Learn what you can do to win a bidding war. While the offer price is critical, there are plenty of other things you can do to make the best offer. Here are my top tips . . .
- Get in Fast
When you find a home that may be of interest don’t hesitate to schedule a showing and get an offer submitted right away. I’ve had a number of clients who went under contract with sellers by making over asking price offers within hours of a home going on the market. Some sellers just want to get their home under contract and end the inconvenience of showings.
- Look at Homes Below Your Budget
Losing out on homes over and over again because they’re selling for over the asking price is extremely frustrating. To avoid getting outbid for homes that are selling for above your budget look at homes below your price range so you’ll have some flexibility. If your budget is $500,000 and you’re looking at homes priced from $450,000 to $500,000 those homes are probably selling from $500,000 to $550,000 or more. That’s just how this crazy market is. Include homes in the $400,000+ range so you’ll have a shot of winning and staying within your budget.
- Non-Refundable Deposit
The typical sales contract in PA includes a deposit that can be fully refunded to the buyer if the buyer terminates the agreement due to inspection issues. There’s no reason that a buyer couldn’t make all, or part, of that deposit non-refundable. It’s a common practice in other parts of the country but not here. It can be used more often.
- Your Mortgage Lender Matters
All mortgage lenders are not equal. Big banks and credit unions both have reputations for being difficult and missing deadlines. Choosing a local lender with a reputation for getting loans completed on time and great communication can make the difference when competing with another offer.
- Inspection Contingencies
Right now the real estate market is so competitive that homes are getting 5, 10, and even 20+ offers. It’s fairly common that the winning offers will completely waive home inspections. That option comes with a lot of risk. There are alternatives to waiving inspections.One option is to make inspections non-negotiable and give yourself the option to take the home or walk away. Sellers don’t want to fix things and don’t want to negotiate inspection so this option can be attractive.Another option is to state in the contract that items estimated under a certain cost to repair are non-negotiable. For example, your offer may include language stating that any individual item estimated at under $10,000 is excluded from the home inspecting contingency.
- Short Inspection Timeline
If you will be performing inspections when buying a home it can help to make a short inspection timeline. The typical offer includes 10-12 days for inspections, 5 days for negotiating inspection issues, and a 2 day period to decide if you want to move forward or not if agreement on inspection items hasn’t been reached. Changing that to a 7 day inspection period, a 2 day negotiation period, and a 1 day final decision period allows for inspections and it will allow the seller to get the house back on the market quickly if the sale falls through.
- Include an Escalation Clause
An escalation clause will automatically increase the offer price by a certain amount above other offers. The escalation clause should also include a maximum amount. For example, if your offer is for $300,000 then your escalation clause may be for $5,000 over the next best offer but only up to $325,000.
- Cover the Appraisal Gap
Lenders will require an appraisal to get an independent assessment of a home’s value before they will fund a loan. As prices continue to rise quickly those appraisals often come in low. If a home sells for $450,000 but the appraiser values the home at $425,000 then you have an appraisal gap. In a buyer’s market the seller will typically agree to drop the sales price. In a seller’s market it’s common for buyers to cover all, or part, of the difference. Spell out what you’ll cover in your initial agreement to minimize sellers concerns that you’ll terminate the agreement if the appraisal is low.
- Letter to the Seller
Writing a letter to seller can be helpful but fewer and fewer sellers are reviewing them due to issues with fair housing laws. If there are two great offers and the seller chooses one over the other only because the buyers are a ‘nice young family’ it can become a legal nightmare. Personally, I recommend that sellers ask their agent not to include these letters when sending offers for review. But, go ahead and write the letter and leave that up to the seller. I’ve seen many cases where the letter to the seller made the difference so give it a shot.
- Work with the Seller’s Timeline
Working with the seller’s timeline can make all the difference when offers are close. Your agent should try to contact the seller’s agent to find out if there’s a specific day that the sellers would like to sell their home. If the seller needs the proceeds from their sale to buy their next home on the same day this can make all the difference if you can accommodate their schedule.
- Let the Seller Stay in the Home
Oftentimes sellers may need some extra time to find their next home. If that’s the case and you’re able to let them stay for a while so they can look for a home it can be a big help. Recently, I came across a buyer who allowed a seller to stay in the home rent-free for 3 months. Allowing the seller to stay in the home can be very attractive and reduce a lot of stress for them.
Buying a home in a seller’s market is tough. There’s going to be a lot of competition so the better prepared you are and the stronger you can make your offer, the higher your chance of winning the bidding war. Working with an experienced real agent who knows how to craft a winning offer will be a be a major factor in getting your offer accepted. If you have any questions about how to win a bidding war in a competitive please email me at firstname.lastname@example.org.