Winning in a competitive housing market
With low housing inventory in Fairfax, Loudoun and Prince William, buyers are finding themselves in a position where they must win over sellers to secure a home this spring. I believe this trend will extend the selling season into early summer. If you are a serious home buyer, you should take a serious look at how today’s sellers view your offer.
First, make sure your Realtor puts forth your offer as an organized package of information. A cover letter highlighting favorable points can move your offer up the ladder, but in order to know what the offer synergies may be, some questions must be asked. Do the sellers want a quick closing or could they use a rent-back? Do the sellers wish to settle before their next payment or months from now? Is there a deadline for offers? Not asking the right questions may result in your offer being passed over. Sure sellers would like to get the most money but there are other items to determine. Perhaps there is something else that lines up with you’re willing to do. Other buyers may not have taken this into consideration.
A cover letter can promote your well-constructed offer. The offer letter should be an introduction to what the seller will see, highlighting anything noteworthy. Here, you can complement the seller’s property but be careful to not over- do it. The path to settlement is a journey, and by showing the sellers that you are resolute and decisive, you can provide the seller with the confidence, that you will complete this journey.
There are some basic ingredients all purchase offers should have. Your offer should include a clear financial path to how you will buy this house. Most of the time that means a new loan. The sellers are taking a chance by taking your offer above others so show them how organized and detailed you are. This means your offer should include a pre-approval letter. Is your lender letter up to date? I have seen many pre-approvals that are 60 days old, with old rates and prices that don’t match or exceed the offer price. What does this say about you as a buyer and the relationship with your loan officer? Is your pre-approval letter complete and display your reputable loan officer information? Does your pre-approval cite the subject property? When I put in an offer, I want the sellers to know that my buyer’s and their lender are in lock-step. The goal is to inspire the seller’s confidence. The last thing you want is for a competitive offer to roll in while you scramble to collect more details.
Is your earnest money deposit earnest? This money is held in escrow as we check off on the contingencies and complete the title work. The amount you write on your earnest deposit check will send a message to the sellers. To me, a two thousand dollar EMD check on a 450K house does not seem serious, but I see it all the time. Deposit checks should be 1% of the sales price or higher. Imagine you were selling your Toyota and had lots of takers. A man shows up offering you twenty bucks to hold the car for a week and wants you to tell everyone else that it is sold. This might work out fine but how much would it hurt if the man if decided not to come back? Hotter properties command a more serious deposit.
In a competitive market make your best offer up-front assuming you won’t have another chance. I am not a huge fan of escalations, but if the situation calls for an escalation give careful consideration to the increments and cap? How certain are you that competitive offers exist? A buyer gives up a lot of negotiating power when using an escalation clause that goes unmet by a competitor and completely shows your hand. On the opposite side, low-balling is more appropriate for stale listings. You should research each home neighborhood by neighborhood and feature by feature decide whether to jump on listing right away or time your offer.
In a competitive market carefully consider the contingencies you are asking for and try to make the timelines tight as possible. I will often book a home inspector before submitting an ofter. The idea is that if we are going to ask for contingencies, we should be able to point out that the time is short. Once we have tied the property to a contract, sellers will often grant a couple of days extra if there is an issue.
Preparation and direction of purpose are the keys and don’t be afraid to walk away when something doesn’t fit. Sometimes the difference between two buyers’ offers are very narrow, and the tie will go to the most complete and thoughtful.
Posted on April 24, 2017 at 7:26 pm by Tom Saporito