Tired of losing out in multiple offer situations? These 4 tips will help you beat other buyers.
Anyone who has bought a home recently, or is in the process of trying to buy a home in the Macomb area knows we are in a sellers market. By sellers market, we mean that we simply do not have enough good listings of homes for sale to supply the buyer demand that is in the market right now.
The best listings sell within days, sometimes within hours of hitting the market. For home buyers in this market, it's very competitive and oftentimes very frustrating. Rushing out to see a new listing the same day it hits the market and rushing to get your offer in as quickly as possible, only to get caught up in a bidding war and losing out happens a lot in this market.
Sometimes its out of the home buyers control and just wasn't meant to be. Maybe another buyer just wanted the house more and offered a higher price. Or perhaps one of the other buyers was a cash buyer and could offer a quick closing with no mortgage approval needed. Not much a buyer can about that.
But in many cases there are things the home buyer can do to make their offer stand out from the pack and often, it doesn't necessarily mean paying more for the home. Here are some strategies we coach our home buyers on to make sure their offers have the best chance of getting accepted in a sellers market.
1. Verified Mortgage Pre-Approval Letter
Not all mortgage pre-approval letters are created equal. If done right, your pre-approval letter can make you look like a "rock-solid" buyer in the eyes of a home seller. Unfortunately many mortgage pre-approval letters aren't so strong.
Before having your lender issue you a mortgage pre-approval letter, submit your financial documentation (W2's, paystubs and bank statements) to your lender so they can verify your income and assets. This will allow them to add language in your pre-approval letter to let the seller see that your lender has verified that you not only have the qualifying income to get the mortgage loan, but you also have the necessary funds needed the day of closing.
A pre-approval letter that states your loan is "subject to verification" of income and assets sends a signal to the seller that your lender may have issued a pre-approval without doing the proper due dilligence and there might be some risk in accepting your offer.
2. Increased Earnest Money Deposit
Your earnest money deposit is the way you show "good faith" in making your offer. In other words, it's a way to show how serious you are. Nothing looks less serious to the seller than coming in with a small deposit of $500 or $1000. As one of my seller clients so artfully put it recently when we received a $405,000 offer with a $500 deposit, "that doesn't seem too earnest".
Show your seriousness by submitting your offer with a deposit that grabs the sellers attention and really separates you from the pack. If you're buying a home for $200,000 you are going to need at least $10,000 at the closing table anyway, so beef up your deposit to $5000 or even $7500. It just gets credit towards your down payment and closing costs anyway, and you'll still get the deposit back if you are unsatisfied with the home inspection, or the home doesn't appraise for the purchase price value.
3. Shorter Timeframe for Home Inspection
When writing an offer for a buyer, most Realtors will put a home inspection contingency timeframe of 7 or 10 days typically. Some even stretch it out to 14 days. From the sellers standpoint, this is time that their home is off the market in a hot market and its time lost in the event the buyer decides to rescind their offer during this contingency period. Make sure you have your home inspector selected before making your offer. And talk with the inspector about his availability so you can write your offer with the shortest timeframe possible. If you are only asking for 3 to 5 day inspection period while all the other buyers are asking for 7 to 10 days, or more, your offer will look more appealing to the seller.
4. Appraisal Guarantee
One problem we have in a market with rising home values is the bank appraisals can sometimes lag behind what buyers and sellers agree to sell and purchase a home for. This can cause long delays while the buyer scrambles to come up with extra funds needed, or cause the seller to consider whether they want to reduce the price or put the home back on the market. An aggressive approach to making a buyers offer considerably more appealing than other buyers is to put an appraisal guarantee in the offer whereby the buyer agrees to proceed with the sale regardless of the outcome of the appraisal. Or to at least guarantee to proceed with the purchase for a certain amount above the appraised value. Now, this strategy isn't for everyone. It requires additional down payment funds to bridge the gap between the low appraisal and the purchase price. But this is a very powerful tool savvy home buyers can use to crush the competition.
5. Free/Extended Occupancy to the Seller
In spite of having their home on the market, many sellers do not know exactly where they are moving to yet. And in many cases, they have to wait for their current home to be sold in order to buy their next home. Many sellers will need a period of time to the occupy their home after closing before they are ready to move into their new home. And having to be out of the home by a certain date can be a great source of stress and anxiety for home sellers.
A savvy home buyer can turn this into a benefit to the home seller and make the buyers offer stand out from other offers. One way, is to offer occupancy to the seller at no charge. Sellers typically pay the new buyer "rent" to stay in the home after closing. This could provide an additional financial benefit to the seller without you raising your price as a buyer. A second way is to offer the seller more time than they are asking for. This will give the seller additional peace of mind that they have the time they need to move out and shows you are willing to be flexible to work with them on a move out date that is convenient for them. This peace of mind can actually be more beneficial to a home seller than a higher price!
Using one or all of these strategies will go a long way towards setting yourself apart from other buyers in a competetive market. Keep in mind, these strategies aren't for everyone and should only be considered after carefully weighing your options and consulting with a qualified Realtor. Feel free to reach out anytime and I'd be happy to discuss these strategies with you.