It's been a seller's market for quite a while now, which has everyone wondering if the trend will continue into 2018. According to most analysts, the answer is yes. Real estate experts predict more millennials will enter the housing market in search of their first home. Add that to the already low inventory, and I expect to see continued patterns of multiple offers and bidding wars.
So, what can you do to make sure your offer stands out from the crowd?
Have a frank discussion with your Realtor. There are a few strategic things that can be done to put your offer on the inside track when you do find that perfect home.
You must be flexible and prioritize your wish list.
In this market, you have to move quickly and sometimes you can't afford to be picky. If the home is in that perfect neighborhood that absolutely everyone wants to buy in, you will probably have to make compromises. You certainly usually don’t have the luxury of “sleeping on it.” Someone else just made a full-price offer and the house went under contract while you were “sleeping on it.”
Know what you absolutely need and what you can do without. It may be a MUST to have 4 bedrooms, a garage or a newer kitchen. But you may have to sacrifice your WANTS for an extra den/office space, a pool or updated bathrooms. Be flexible and creative. Can you turn the eat-in kitchen or dining room into that office space? Is there room to add a pool later? Remodeling a bathroom is cheaper than remodeling a kitchen.
Try to cater to the seller’s needs.
It helps if you are in a position to be flexible with your timeline. If the seller needs an extra month to get moved out or wants to close as quickly as possible, talk with your realtor about how you can help. I often reach out to the listing agent to determine if the seller has a preferred time frame before I even submit the offer to ensure that we’ve matched what the seller wants as closely as possible.
Obviously, if you’re getting a loan, you can’t close in two weeks, but if the elderly seller needs extra time to get out of the home or the seller wants to wait until school ends to make the move, you might be able to make that happen. A little bit of inconvenience (such as living in an extended stay hotel for two weeks) could be the key to buying the home of your dreams.
Get a pre-approval letter from a lender.
This is not the same as a prequalification letter that you got online in 15 minutes. A true preapproval letter shows that the lender has not only pulled your credit, but also obtained verification of income and assets. As a listing agent, I will choose one offer over another just based on whether the buyers have taken the extra step to get a true preapproval. It proves to sellers and their agents that you have been financially vetted and are a great candidate to purchase their home. Further, it helps to eliminate disappointment for both sides later on down the road.
It also helps you know what mortgage you can reasonably afford, helping to narrow your search. You don’t want to fall in love with one home and then find out you can’t afford it. Also, when you do find your dream home, you want to be prepared to place an offer right away and not risk losing it while you go through the preapproval process. In today’s market, listing agents simply will not accept offers without a preapproval letter or proof of funds.
Ask your realtor if an escalation clause makes sense.
An escalation clause is a clause in a contract that allows for an increased purchase price under certain conditions. Usually the buyer works with the realtor to determine the initial purchase price and then determines what incremental amount and to what maximum they will increase their offer with proof of a competitive offer.
In today’s market, many sellers price very aggressively hoping to break market records. In this instance, an escalation clause probably does not make sense. However, another pricing strategy sellers’ use is to price the home lower than the current value to increase interest and spark a bidding war, thus ensuring that the seller is getting the highest price possible based on the current pool of buyers. In this instance, an escalation clause can really work to a buyer’s advantage.
If you know how much you are willing to pay over another offer, it can help you to know you put your absolute best foot forward if a bidding war takes off. You could still lose out to another buyer with terms the seller likes better, such as a cash buyer or one with a particularly quick closing date, but at least you can rest assured that you made your offer as attractive as it could possibly be.
Ask your realtor if a personal letter would be well-received by the sellers.
Some situations call for a heartfelt letter to sellers. In some scenarios, these can make or break the outcome of a competitive multi-offer bidding war. Sharing why you love the home or why you just HAVE to live in the area can trigger a seller’s emotions. If you are at a lower price point and competing with an investor, some sellers will accept a lower offer to help you get started. If you are relocating from out of state and need to find a place before school starts, you should definitely include that in the letter as well.
Ultimately, most sellers will gravitate towards the highest bid. But tugging on their heartstrings may help and it certainly doesn’t hurt.
I hope you will find this information useful and help you get the keys to your dream home. If you are looking to purchase a home in the Tampa Bay area, please feel free to call me on my cell at (727) 244-3845 and I'll be happy to answer any questions you might have.