We have all heard stories about today's hot real estate market -- a home that received more than 100 offers, the winning bid more than 10% over the asking price, paid in cash. How on Earth can you begin to compete in this market?
Here are 10 creative ways you can get your offer accepted when the market is hot.
1. Get your ducks in a row
Before looking for a home, you want to have certain things lined up ahead of time. First and foremost is pre-approval for a loan. Rosetree Real Estate can help connect with you a qualified mortgage broker today.
Contact us today for a free consultation.
2. Hire a good realtor
A good real estate agent will help you connect with the sellers agent to determine what the sellers might be after. The main goal with any offer is to make life as simple for the seller as possible. If you know some of the key things the seller wants, such as a fast closing, or a lease-back agreement, then you can tailor your offer to meet those requests. By being flexible, you can potentially make an offer at or slightly above asking price by emphasazing flexibility on time frame.
3. Nix the contingencies
As a buyer in a hot market, you want to make it as easy and as quick on the seller as possible. That's why cash offers are so attractive as they avoid the lender process which takes additional time and could involve snafus. Without a cash offer, include as few contingies as possible.
With a mortgage loan, you are likely not going to get away from the two biggest contingencies: loan and appraisal. These are required for most home loan processes. You can get away from an appraisal contingency in some cases with a larger down payment.
Another common contingency is a home inspection, which you should consider waiving. Even without the contingency, you can still take steps to safety your purchase through a more cursory pre-inspection. Really all you are looking for are major defects that might steer you away from the home because the seller is unlikely to make any changes to the property in a hot market.
Along these same lines, don't ask for anything!
4. Negotiate a lease-back agreement
It is generally better to sell your home first before buying a new one, but in times past you could probably get away with buying first. That's not true at all anymore. Today's sellers have so many bids to choose from, they are not going to deal with a buyer that's contingent on selling their own property. But it's not always the bid with the highest offer that gets the deal.
A common way to navigate this predicament, aside from a contingency -- which you want to avoid -- is to negotiate a lease-back with your new owners. Or vice versa, you can offer your seller a lease-back agreement if that's what they desire. So whoever buys your home, you lease it back from them for a period of time until you find a new home.
5. Be prepared to go over asking
With the way homes are selling these days so far over asking price, in order to set reasonable expectations for yourself, target homes that are about 10-15% lower than the price you have actually budgeted for a home. This way, you do not waste your time making offers on homes that are not competitive.
6. Consider an escalation clause
An escalation clause means that your offer will automatically increase to a certain price if another offer comes along. This is similar to the way an online auction works where you can set a price limit and bids are automatically entered until that point. You have to trust the sellers agent, however, as they can always counter off to your maximum price. This can be a good strategy if there are mutliple offers but it might just be better to make your best offer.
7. Offer earnest money
An earnet money is another name for a deposit that's held in escrow. It's made after a seller accepts your offer and can be a sweetening deal because it shows that you are serious about buying the property. The typical amount is 1 to 3% of the purchase price and it's applied toward your deposit and/or closing costs. Usually it's due within a few days of the seller accpeting the offer.
8. Spend some time window shopping
The most stressful thing about a sellers market is how quickly buyers must make decisions. To achieve a winning bid you want to be fast to a property and fast to make a competitive offer. This major life decision that involves the biggest purchase of your life and determine where you will spend many years to come, must be made sometimes in a matter of hours if you want to get the house.
For this reason, it's a good idea to window shop for a period of time before actually entering the market. This will give you a good idea about what's out there withou the stress of actually being in the market. You can do this with or without your realtor.
9. Decide where you can compromise
When you're buying a new home, it's hard to imagine compromising on anything. You want a big kitchen and a master bedroom with a hot tub. We get it. In a sellers market, it's a good idea to consider what aspects of the home you can consider living without. This can set your expectations a little lower and will give you the best chance of scoring a home you can enjoy for years to come.
10. Be patient
Our last piece of advice in a hot market is to be patient. Sometimes it's best to just wait it out a little until the market cools off. Less buyers will be around, possibly more sellers, and the process might just be a little easier. Interest rates will be going up but they are still at historic lows and they will not being going up at an extremely fast pace. So in reality there is really no rush. Be patient and find that home you have always dreamed of.
