In many parts of the country, buyers search for a home in a seller’s market. That means there aren’t enough houses for sale compared to the number of buyers. When the housing market is in this state, every available home receives competing offers from buyers who want to make it their own.
Let’s face it, every buyer’s goal is to have their offer be the one the seller accepts. The best general advice is for buyers to make their highest and best offer. But are there any unique things you can include in your offer to make it stand out from the crowd?
Well, it turns out there are several unique ways to structure an irresistible purchase offer. They don’t guarantee a seller will accept your offer, but they will narrow down the competition, so you have a fighting chance.
START WITH THE BASIC MORTGAGE ESSENTIALS
Before competing in a sellers’ market, you need to complete your mortgage pre-work. Work with your mortgage advisor to be fully preapproved for a loan before you start making offers.
Don’t stop there because most of your competition will also get pre-approved. So take it one step further and add a copy of the Upfront Desktop Underwriter (DU) or Loan Product Advisor (LPA)approval form.
DU is an automatic underwriting system provided to lenders by Fannie Mae and LPA is Freddie Mac’s similar system. Lenders use the automated underwriting system (AUS) to approve borrowers. Having a DU or LPA approval before making an offer is a big hurdle that your competition might skip.
The DU or LPA approval provides detailed information, backing up your pre-approval letter with facts. The final touch is asking your mortgage advisor to call the seller’s agent to answer questions about you as a buyer.
OFFERING MORE THAN LIST PRICE
When competition is stiff, buyers usually make their offer more than the list price. But no one wants to overpay for a property, so how much is too much over the list price? Fortunately, there are ways to come up with a purchase price you feel good about.
First, work with your real estate agent to gather historical information about home values in the neighborhood. Compare the list prices to actual closing prices of recent sales. This will tell you how much, and how fast, homes are selling for and give you a good idea of a maximum offer.
Your Provident Lending Group Mortgage Advisor also has the Bid Over Ask tool, which calculates the home’s projected appreciation. This tool calculates how soon you’ll break even based on data such as how much the seller originally paid for the house and the amount offered over the list price.
With reliable information to base your price on, you can confidently make your highest and best offer the first time. But there are more ways to spice up your offer.
MAKE IT ALL ABOUT THE SELLER
Understandably, home buyers focus on what’s best for them. They want the best mortgage product and terms and the perfect home at a low price. But if you want your offer accepted, try writing an offer based on what the seller wants.
Your real estate agent can ask for information from the seller’s agent. What are the sellers’ post-sale plans? Are they concerned about anything besides the sales price? Use what you learn to make your offer uniquely appealing to the seller.
Here are four ideas to help your offer stand out:
1. Write a clean offer. Make it as simple as possible. Don’t ask the seller to include their personal property. For instance, with two almost identical offers, the seller is likely to accept the one that doesn’t ask for their outdoor furniture to be included. Similarly, don’t include requests that cost the seller a portion of their sale proceeds. Covering part of your closing costs and making minor repairs means less money to the seller.
2. Offer the seller free rent-back. You’ll have 30-45 days before the first payment is due after your mortgage funds. So you can stay in your current home for up to a month without making two payments. Offering the seller a free month to move is an attractive bonus.
3. Help the seller make more money without increasing the sales price. You can do this by saving them money. Offer to pay their portion of the title costs, part of the real estate commission, or part of their moving expenses. Covering actual costs increases the seller’s sales proceeds.
4. Give the sellers time for their house hunting. If you know the seller is also struggling to compete to find a home, give them extra time. Offer their choice of a longer closing time or an extended rent-back period. But if they’ve already found a house and need a quick close, put that in your offer.
CONSIDER YOUR CONTINGENCIES
In a housing market with regular competition, buyers make offers to purchase a home as long as certain conditions happen. The three most common conditions are:
- Loan approval.
- The appraised value matches or exceeds the purchase price.
- The property inspection results are positive.
These conditions are called contingencies, and they protect the buyer without benefiting the seller. When competition is stiff, sellers choose the cleanest offer with zero contingencies. How can buyers feel comfortable without including these necessary contingencies?
No matter how much competition exists, buyers should meet with their mortgage advisor and real estate agent before writing an offer without contingencies. First, ask your mortgage advisor if all critical underwriting conditions for your full pre-approval have been satisfied. If they give the green light, look at the property.
If the sellers already have a property inspection report without serious issues, you’ll have the chance to review it with your real estate agent before writing an offer. However, what happens if a property hasn’t been inspected?
Why not bring a property inspector with you to view the home? Take enough time for the property inspector and your agent to identify any potential – and expensive – issues. If any problems are identified, consider the cost of the repairs before moving forward. If you’re comfortable, consider excluding the inspection contingency from your offer.
The contingency with the most potential financial impact (aside from property repairs) is the appraisal contingency. Lenders base the maximum loan amount on the lesser of the appraised value or purchase price. If the appraisal is lower than the purchase price, the buyer must increase their down payment to cover the difference between the lower loan amount and purchase price.
If you’re making a large enough down payment, a lower appraised value won’t impact your loan amount. However, if your cash is tight, put the amount you’re willing to pay above appraised value in the offer, whether $5,000 or $10,000. With either option, you may be comfortable excluding the appraisal contingency.
You can also offer to cover a percentage of any difference between the appraised value and purchase price. For example, if the appraisal is $50,000 below the contract price, offer to pay 50%. Your real estate agent will be able to help with this as you’re writing the offer.
It’s definitely possible to compete in a seller’s market. If you think a little outside the box, are well prepared, and ask your mortgage advisor and real estate agent to help you write an irresistible offer any seller would accept.