What Do You Mean I Didn’t Get That House?
I put a full price offer in on that house! What do you mean I didn’t get it?
You diligently searched for homes for sale online, toured some that you really liked, and you found some winners. And there’s one you fell in love with. Then you waited. And waited. You weren’t able to make a quick decision. You have to talk to dad first.
So, after some hemming and hawing and talking it over with dear ol’ dad, you decide that you’re finally ready to make an offer on that house you fell in love with 3 days ago. You and your agent look over comparable houses that have recently sold in the area, and you reviewed the market stats. You come up with what you think is the perfect bid ─ a full-price offer! ─ and submit it. You feel so confident that you’ll get the house that you start packing as soon as you get home!
Then your agent calls and gives you the bad news: "The listing agent just called and said she has received multiple offers. After careful review and consideration,” she says, “the sellers have decided to accept another offer." You didn’t even get a chance to revise your offer!
As the saying goes, ‘you snooze, you lose’.
This is not last year’s real estate market. Today, you can’t afford the luxury of sitting back and waiting two or three days to make a decision about that house you fell in love with.
As recent as last year, there weren’t many homebuyers out looking for homes. Those who were out looking had plenty of homes to choose from, and often could get a nice discount off the seller’s asking price. It was a buyer’s market then. Homebuyers today are finding that it’s no longer the case.
Confident that the housing market has finally hit bottom, along with a stabilizing economy and rising mortgage interest rates, more and more buyers are out looking for homes today. Unfortunately, many potential home sellers are sitting it out because they’re either still underwater on their mortgages or the sales prices are still too low for them to make a move. That means there is not enough houses for sale to meet demand. It’s now a seller’s market.
Many homebuyers are finding themselves faced with multiple-offer situations today. Often times, they have to put in offers on several homes before they finally make a successful bid.
So, if you're in the market for a home right now and want to increase the odds that your offer will be accepted by the sellers, you should consider taking the following steps:
Don't get pre-qualified for a mortgageMany sellers today are concerned that their deals may fall through because the buyers are not really qualified to buy their homes. So, you need to be in a position to make an iron-clad offer. Don't waste time on a mortgage pre-qualification ─ it’s not worth the paper it’s written on. It’s nothing more than an estimate of how much you might be able to borrow that is based on nothing more than the information you provided your mortgage lender or broker.
Before you even start your house hunt, you want to make sure that you are actually pre-approved for a mortgage. That means your mortgage broker or lender has done his due diligence: He has verified your income through your pay stubs, W2s or 1099s, and tax returns; he has 2 - 3 months of your bank statements to show that you have sufficient funds for the downpayment, closing costs, and reserves; and he has checked and verified your credit history and credit scores.
You should also have full credit approval for the loan. This means that your completed mortgage application has either been run through automated underwriting or that it has actually been reviewed by a mortgage underwriter.
Your lender should then issue a letter indicating that you’re eligible for the amount you want to borrow, and that the decision was based on a full examination of your income and assets as well as a review of your credit. The letter should also include the maximum mortgage amount that you qualify for, the type of mortgage (i.e., Conventional, FHA, USDA, VA), the term, the interest rate, the monthly payment, and the amount of downpayment.
Get a seasoned professional on your sideFinding and working with an experienced real estate agent is even more important when you’re in a seller’s market. You'll want a professional who specializes in working with buyers and who knows the local market. When interviewing agents, one of the questions you should ask is whether he or she has any experience in multiple-offer situations.
An agent who is experienced in handling multiple offers will be in a better position to help you make a winning bid. A good agent can also help you determine whether a home is priced right for the market, back that up with market data and comparisons (comps), and help you make a decision on how much to offer.
Don’t be a doffer. Put in that offer!Sometimes by presenting your offer right after touring a home, you’re showing the sellers that you're a very serious buyer and that you really want to buy their house. Many sellers want to sell their homes as quickly as possible. If you submit a timely offer, not only may you may be able to avoid a multiple-offer situation, you may also be able to avoid a situation where the sellers have just accepted another offer. And, in the absence of other offers ─ provided your offer is reasonable ─ you stand a pretty good chance that the sellers will negotiate with you to try and come to an agreement.
Make the sellers like youYou should carefully write a personal letter that is to be submitted with the offer. A letter is more personal than a written offer, and it can give you an emotional edge over the other buyers.
It never hurts to try and relate to the seller. For example: Are you a young couple buying your first home? Are the sellers moving out because they just had their third child and need a bigger home? Or are they downsizing because their last child has just moved out?
In your letter, you want to tell the sellers a bit about yourselves, why you like their property, and how you’ll take care of it after they moved on. Tell them what you do for a living and how thorough your lender was in pre-approving you for a mortgage.
Both your agent and your mortgage lender or broker should also submit a one-page professional resume to include with your offer. Sellers should get the impression that you are a serious buyer with no potential financing issues, that you’re working with a competent real estate agent, and that you are someone who is committed to buying their property.
Pay what the property is worth to youThat goes without saying. However, buyers sometimes get caught up in the ‘moment’. They’re excited about the prospect of buying a home, and it shows. But in the art of negotiations, you want to make it a win-win situation for both you and the sellers. If you make a ‘lowball offer’ and stick to it, then you’ll find that the sellers will either stick to their asking price, or won’t bother negotiating with you at all. They’ll consider your offer as nothing more than a nuisance and a waste of their time. But you don’t want to overpay for the property, either.
Now is not the time to play games. Now is the time to make your best offer!
If you really want to buy that home, why would you try to lowball the sellers? Those days are over (for now, at least). The homes that are in good condition and priced right for the market are sometimes selling in a matter of hours if not days. If you make your first offer your best offer, then you've done everything you can to tip the scales in your favor.
You’ll have no way of knowing what the other buyers are offering on the home. And neither will your agent. The sellers could be playing one against another over a couple of thousand bucks. Or, maybe they’re hoping that some buyer will raise their initial offer by tens of thousands of dollars when they didn't have to.
If you find yourself in a multiple-offer situation and get a request for your highest and best offer, and if you done your homework, you can simply say: “The offer I presented is my best offer!” If you’re going to make an offer that is over and above the asking price, you should be aware that if you're getting a mortgage, the property will need to appraise for that price. Also, it's okay to bid less than the asking price if you feel that you have strong compensating factors ─ such as no contingencies ─ to offset other potentially higher offers.
Try an escalation clauseAn escalation clause is an addendum to a purchase offer that authorizes your agent to offer a specified dollar amount that is over and above the best offer the seller receives. It's also a powerful way to start a bidding war.
So you want to be sure to include the highest price you’re willing to go to ─ or your "walk-away number" ─ in your escalation clause. And stick to it. Remember, while you may really want that home, you don’t want to overpay for it either.
Example of an escalation clause: “Contract Price to be $500.00 higher than the highest bona fide offer, net of concessions, received by Seller, not to exceed $255,000.00. The parties intend this agreement to be a binding contract, and not an offer to enter into a contract at a later date. The price determination will take place as set forth herein, but the fact that the price is not determined as of the time this contract is fully executed by both parties shall not defeat the existence of a contract. Listing Firm to provide Selling Firm with a copy of the next highest bona fide purchase agreement offer.”
It's not always about the moneySometimes the offer is more about timing then it is about the money. When you make an offer, remember that the highest offer isn't necessarily the best offer. The best offer is the one that has the fewest hassles for the sellers.
Yes, sellers do want to get as much money for their house as they can. But many sellers often want to close as quickly as possible to save money on their old higher rate mortgage. Or, they may have a new home being built that will be move-in ready in just 45 days. Other sellers will want to close later so they can take their time in finding their new home.
You should choose a settlement date that is most advantageous to the sellers. Have your agent find out what matters most to them. Be flexible, and work that into your offer. If you make it as easy on the sellers as possible, you’ll stand a better chance of having your offer accepted.
Eliminate or reduce contingenciesNot only is the best offer the one with that has the fewest hassles for the sellers, it’s also the one that offers the fewest ‘outs’ for the buyers.
One way you can help your offer be the winning bid is to limit the attorney review period to no more than say 3 days, and waive the home inspection. This means you need to have your act together. Call your home inspector before you submit your revised offer so you’ll have time to do your due diligence.
You’ll want to take another walk through the house with your inspector as soon as possible to make sure there are no serious issues. Let your attorney know the limited amount of time he has to review the purchase and sale agreement. This strategy will minimize the amount of market time a seller could potentially lose if you were to back out of the purchase of the home.
If you are a cash buyer or have the cash reserves to cover the difference between a low appraisal and price you’re paying for the home, then you may want to consider waiving the appraisal contingency.
If you can't waive these contingenices, then maybe you can shorten the time frame. For example, if you know you lender can provide you with a mortgage commitment on short order, you may be able to reduce the loan contingency from 30 days to just 10 days. You’ll need to be in constant communiction with your mortgage lender so he knows what’s going on.
Make a large earnest money depositTo show the sellers that you're really serious about purchasing the home, you should make as large an earnest money deposit as possible. Offer to put down as much as 5 to 10 percent ─ or more ─ of the purchase price. Sellers know that a buyer with some ‘skin in the game’ will most likely make it to settlement as opposed to bailing out on a signed agreement.
Do you really need help with those closing costs?If you don't need seller assistance with closing costs, then pay them yourself! Most of your competition will be asking the seller to pay their closing costs because they need it to make the deal work. There's nothing wrong with that, but if you're are financially able to pay your own closing costs, it could give you another edge over your competition. Not only is it one less fee that the seller has to pay, it’s not rolled into your mortgage in the form of a higher purchase price ─ and you won't be paying interest on that extra money over the life of the loan.
Be the back-upIf there is already an accepted offer on a house that you really want, then position yourself as a back-up buyer in case the other buyer backs out. Today, 1 out 3 purchases falls apart before settlement for one reason or another. Mostly it’s because of mortgage qualification issues and low appraisals, but it could be for other reasons as well. If you really like a property, then have your agent communicate your interest in the property to the seller’s agent. If the current buyers do back out, then you might be the first in line to make an offer and get that house.
You never know when that dream home will suddenly come on the market. So, you should always be prepared to make a strong offer on a home. When you do make an offer, make it your best offer. And make it as straightforward as possible. Try to reduce or eliminate as many contingencies as possible ─ but be sure you’re comfortable with it. Be flexible in your negotiations, and address as many potential seller concerns as possible early on. If you’re dead set on a point or two, consider whether it's worth blowing the deal over it. In today’s market, it’s probably not in your best interest to hold firm.
By taking these steps, you’ll position yourself as a strong and serious buyer, and you could ultimately get the dream home you want without all that muss and fuss.
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East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB