Top Ten Ways to Prepare for Competitive Offers
If you're buying a house in today's turbulent market - you'll likely be competing with other buyers for the same narrow inventory of available properties. If you you want to actually be competitive, here are a few things to prepare for.
10. Be prepared to act quickly! Those who are able to act quickly to submit an offer have a substantial advantage. These buyers have likely already lost out on a couple of other properties because they hadn't been prepared to compete and have used valuable time to learn their lesson. Do your home work up front: Study this list, study the neighborhoods where you think you'd like to live. In many cases, you'll have just a few hours to make a decision and that seems scary. Keep in mind that what you are trying to do with your offer is secure a position with the Seller that gives you 'dibs' on this property. The only way to do that is to present an offer the Seller will sign ahead of any others he/she has received.
9. Decide on what your "walk away" number or condition is. As part of your ability to act quickly, you need to know what your absolute bottom line number is or what your absolute must-have features are. There many elements to a real estate purchase, the least of which are how much you genuinely like the property. Irrational exuberance has led many homeowners to buying houses they weren't prepared to actually own. Work with your agent to come up with a list of must-haves. Work with your financial advisor to determine what your bottom line is so that if the numbers don't work, you don't let an emotional trigger determine whether you have over paid for a given home or not.
8. Plan to leave a little money on the table... just not too much. In a competitive environment all bets are off. Historical values become merely reference points in an accelerating price range. Full price offers and over-asking offers have become far more common in the ultra-competitive price ranges. Seller's may not feel obligated to provide the kinds of concessions they've been providing for the past few years (e.g. closing costs, transfer fees, etc). The cleaner the deal and the easier it is for the Seller to see you're serious about buying the property, the greater the chance they'll pick your offer.
7. Use the contract to your advantage. Your agent should know the contract inside out. They know the areas that spell uncertainty for the Seller. Typically these uncertainties are the Inspection Objection, the Loan Conditions Deadline, and Insurance Objection to name a few that are specific to Colorado. If the house is newer, consider waiving your inspection resolution and opt for a Home Warranty. Tighten up your deadlines so the Seller doesn't have to wait more than a week for your home inspection to be completed. There's been great success in acknowledging the inspection is for major mechanical, structural, plumbing and electrical consideration and you won't be asking for a laundry list of items to be repaired or replaced. I've heard of Buyers bringing along their inspectors to the initial showing of a highly desirable property and doing an impromptu inspection during the showing period. Lastly, don't even think about contingency offers on the sale of another home you have to sell. Determine early on if you can swing a bridge loan or flat out qualify for your next home without having to sell your existing one.
6. Consider providing additional earnest money. In our market it is typical for earnest money to be approximately 1% of the purchase price. If a Seller sees a contract with double the earnest money or more, that tells them a)you're serious about their property and b) you've got liquid funds available right away.
5. Consider putting additional money as down-payment. Even if you qualify for a low-down-payment type of loan but you've got 10 percent or more you could put down as cash at closing, not only will this help your bank feel better about you as a borrower, it will help the Seller see the value of your solvency and resolve to see the contract through to closing.
4. Speaking of banks, see a lender as early on in the process as you can - preferably BEFORE you start to look for homes you think you can buy. Your negotiating power is directly related to how solid and confident your buying power is. If you don't know for sure you can qualify for the loan it will take to buy the house of your dreams, then there's no sense negotiating on a price only to find out after the fact that you cannot afford it. If the Seller has a preferred lender they'd like you to be pre-approved by - do it. It doesn't cost you anything and it is a tremendous act of good faith.
3. Learn what an "Acceleration Clause" is. No, this isn't the turbo button on Santa's Sleigh. An acceleration clause is a clever contract writing strategy that basically tells the Seller you're willing to pay more than any other buyer by XXX number of dollars up to a purchase price of xxx number of dollars. Many real estate agents a) don't know how this strategy works and/or b) don't like to write them because it may diminish a buyer's negotiating position. Regardless, you should know what these are because even if you don't want to use one for yourself, you'll very likely be competing against a buyer and and agent who will use it.
2. Find a real estate agent you trust - preferably a REALTOR. REALTORS are held to a higher standard of practice than non-realtors and typically have completed more demanding continuing education credit hours than non-realtors. There's no formula for trust except that as a rule, trust must be earned. If you don't personally know a REALTOR, ask a friend - even a Facebook, Google-Plus or Linked-in friend for a couple of recommendations. Interview these candidates just like you would a baby-sitter or other care-giver - we're talking your hard-earned money and equity at stake here! Ask the REALTOR if they work as an Agent or Transaction Broker (this is a Colorado distinction and may not be applicable in your state). An agent provides a position of advocacy that a transaction broker is precluded from providing. In Colorado, the only way to have a real estate broker work for you as an agent is to execute an Exclusive Right to Buy - Agency agreement. It is in your best interest to know that the person handling the negotiation of your home purchase is standing firmly and legally in your corner!!
1. And the Number One Way to Prepare for Competitive Offers is... Trust your agent to do his or her job. If you've gone to the trouble of interviewing and hiring a respected, experienced agent, tell them everything. The more they know about your wants and dreams and lender pre-approval and "walk away" conditions, the better they'll be able to help you attain your goals. They will be the ones to remind you of these critical desires if and when you end up on the Buyer Emotional Roller Coaster. Your agent is your coach and is there to help you "get in the game" and compete at the highest levels.
NOTE: These are simply the opinions of a 10-plus-year veteran of real estate sales and management. This is not meant as legal advice and as such would encourage anyone to seek the advice of an attorney before making any decisions about buying real estate, signing a contract, obtaining a mortgage, or hiring a real estate broker as an agent.