No single strategy can guarantee success, but there are ways you can strengthen your offer and make it more attractive to sellers.
Found your dream home and ready to make an offer? Unfortunately, in a seller’s market where there are more buyers than there are homes for sale, your bid will most likely be one of multiple offers that the sellers will be reviewing. But take heart – there are things you can do to make your offer stand out from the competition. See our list below:
Navigating a real estate purchase is a complicated process. That’s why you need an experienced Realtor who knows the market and can save you time, money, and heartache by helping you find the right home and make and negotiate purchase terms on your behalf. A Realtor is also professionally connected and can recommend a reputable lender, inspector, and other service providers.
New to the community? A good Realtor will not only listen carefully to your priorities, but they’ll also know the local area inside and out, and can educate you about local schools, commute times, and under-the-radar red flags that could have a negative effect on the neighborhood. They can provide you with a comparative market analysis to help you understand the trends and determine the price to offer in your preferred neighborhood. You’ll also get “need to know” facts such as how long the property has been on the market, whether the price has come down during that time, and, of course, the asking price.
TIP: Buying a home is expensive so it’s good to know that, as the buyer, in most cases you won’t pay any fees to a real estate agent. It’s the seller’s responsibility to compensate your agent.
You can show home sellers and real estate agents you’re serious about buying your dream home by getting pre-approved for a mortgage before starting your search. Get started by completing the loan application form provided by your lender.
Here’s how we do it at Amerifirst:
-You complete our loan application and submit it online, by phone, or in person with your loan officer
-Your loan officer team reviews your financials, credit score and report and submits your loan to our Underwriting team for review and pre-approval
-We let you know if you qualify for a home mortgage
-If you qualify, we provide you with an pre-approval letter that outlines the maximum amount you are qualified to borrow.
Then, you submit your pre-approval letter with your offer to the seller. The pre-approval gives you more negotiating power because it tells the seller and real estate agent that your funding is in place and ready to go. We will even call the Listing Agent to explain the strength of your pre-approval.
TIP: A pre-approval can also help to speed up the closing process since much of your financial information is already collected and in the lender’s system.
Once you find a home that checks all your boxes, you may want to put down earnest money as a show of good faith. Why? Because depositing earnest money means you have skin in the game and decreases the likelihood that you’ll place offers on multiple homes and then walk away after the seller takes the home off of the market (although not likely in today’s housing market!).
Earnest money isn’t always required, but it could help you stand out in a competitive housing market. Sellers look kindly on buyers who make these good faith deposits because they want assurance that the sale won’t fall through. And it’s not money lost; once the seller accepts your offer, your earnest money check is applied to your down payment (Your realtor will most likely hold on to your check until it’s needed). You can expect to pay 1% – 3% of the total purchase price in most states. Putting down a larger amount carries weight with the seller and is another way to say, “I really want this house.” Again, your real estate agent can provide direction on how much earnest money you should offer.
Read our blog: The real cost of buying your first home
TIP: If you intend to offer a larger earnest money deposit, make sure you’re serious about buying the home. If, for any reason, you change your mind and don’t go forward with the purchase (other than having a home inspection contingency in the purchase agreement), you could end up losing your hard-earned cash.
When there are more buyers than homes for sale, and you’re bidding against ten other hopeful buyers, a personalized letter could help seal the deal. Most people have an emotional connection to their home. They may be moving, but it’s the place where many of their memories reside – birthdays, first dates, family dinners – and they’ll want to know that the new owner will appreciate its potential and reap the same joys and rewards.
While a letter to the seller isn’t likely to beat out a higher offer or one that has fewer contingencies, it could give you a strategic advantage over someone with a similar bid. So, take stock of the features that appeal to you when you’re touring the home and include them in your letter. Or ask each of your family members to include a heartfelt message on what the home would mean to them and their future.
TIP: Be specific on what you like about their home – how excited you are to have a backyard for your dog to run in, it’s close to your favorite hiking trail, or that the large kitchen will allow you to invite both sides of the family over for holiday gatherings.
BEST PRACTICE: It’s a good idea to avoid any references to your race, religious affiliation, or even political views. You don’t want to trigger any unconscious bias and impact the seller’s decision to accept or reject your offer.
Bidding wars aren’t fun, so it’s best to enter the battlefield armed with your best ammunition. One way to strengthen your offer in today’s low-inventory market is to use an escalation clause. Simply put, an escalation clause is a contract addendum that says your offer will outbid other offers up to a maximum price.
Here’s an example:
Seller’s asking price: $250,000
Your bid: $255,000 with an escalation of $3,000 over competing offers up to $300,000
Possible outcome: The highest bid is $260,000; your bid automatically goes up to $263,000 making you the highest bidder.
Just remember – if another bidder offers more than $300,000, you’re most likely out of the running.
TIP: If you’re offering an escalation clause, keep in mind that your lender is required to use the sales price or appraised value to set the loan amount. If the property doesn’t appraise for the contracted sales price, you’ll need to make up the difference out of your own funds. If this works for you, have your lender mention in the pre-approval that you have the liquid assets or qualifying power to buy at that price.
A seller’s market is great if you’re selling your home. It means your home could sell in a day or a weekend and at a higher sales price. Win-win! On the flip side, if you need to buy another home, you’re at the same disadvantage as every other buyer looking in their preferred neighborhood and budget. This can be a real headache for sellers who don’t know if they’ll be able to find a new home before their current home closes.
This is when a “reverse contingency” might work. In a reverse contingency, once the seller has accepted your offer, their agent puts a clause in the contract stating that they are willing to sell their house only if they find suitable housing within a reasonable time. In essence, the reverse contingency gives them a period of time to try to find a new home before they are legally bound to sell their home. Their goal is to buy time but to get the buyers (you!), and your offer, under contract while they look.
Then, if they find a home during that period that suits their needs and come to terms with the seller, the contingency is removed, and you can move forward on closing the sale.
We’ve already talked about how important it is to get pre-approved before you begin looking for a new home. A pre-approval letter shows the seller the maximum amount your lender is willing to loan you, providing you meet certain conditions. However, pre-underwriting goes one step further. It means your lender has reviewed your financials and is providing a guarantee that it will give you a home loan up to a specified price (providing there is no change to any of the reviewed financial information). By the time you find the home you want to buy, you’ll have already cleared any conditions that the lender may have relative to your financial position and credit worthiness, and in return, they will have issued you a firm commitment letter.
This is just one more step you can take to make you more attractive to sellers. With a firm commitment in hand, you won’t need to include a financing contingency (which allows you to back out of the deal if you are unable to get financing). As you can imagine, offers with fewer contingencies are very popular with sellers.
With pre-underwriting, your financial documents are given to an underwriter, usually one that’s in-house (like Amerifirst!). They will thoroughly vet your financials to evaluate the risks associated with granting you a loan and will either give you the green light to proceed or will reject your application.
Pre-underwriting isn’t necessary for everyone. But it could pay off in a highly competitive market and if you’re up against cash buyers.
TIP: Pre-underwriting is more intensive and takes more time. You’ll want to choose a lender that has in-house underwriters and experience with these types of loans. You’ll also want to get started with the process earlier rather than later so that you’re ready to go when you find your dream home.
Remember that reverse contingency we talked about earlier? A reverse contingency is a good strategy for sellers who want to accept your bid but don’t have a new home to move to. On the other hand, a sale-leaseback allows a buyer to rent the property back to the sellers, letting them stay in the home for a predetermined amount of time after the closing. Of course, you’ll have to hammer out the details with the seller, but if your situation allows you to wait before you take occupancy, offering the seller a leaseback can be a major bargaining chip when there is a shortage of housing inventory.
If you’re buying your first home, it can make all the difference to work with a trusted lender with local roots who can walk with you through each step of the home buying process and provide you with the guidance and support you need to reach your goals. You’ll have the opportunity to meet face-to-face with your loan officer and work together on a plan to get past any hurdles that may be standing in your way. And working with a local lender who has a track record of being responsive and closing on time can give you the reassurance and confidence you need to buy your first home and cross the finish line successfully.
The bottom line
In a tight housing market, you need every advantage you can get. These suggestions might seem small, but they can go a long way in showing the seller that you’re willing to go the extra mile to purchase their home. And while the seller’s priority is to get top dollar for their property, they might give your offer a second glance if it helps make their life easier.
But buyer beware, don’t get so wrapped up in winning the bidding war that you go beyond your budget and end up house poor with buyer’s remorse. Here again, lean on the guidance and advice of professionals who know and understand the housing market: Your real estate agent and loan officer. They’re here to help you make smart decisions that are right for you and your financial future.
Wherever you’re at in the decision process – whether you’re just starting to think about buying, or you’re ready to get started today – one of our friendly loan officers is happy to chat with you about your options. Just contact us at the bottom below. We’re happy to help!