Submitting an Offer in a Competitive Market.
With low inventory or multiple offer situations, homebuyers may find it harder to acquire the home of their dreams. In some instances, a home buyer may be able to take their time and think about a potential purchase, but in a competitive market, one needs to act fast. There are several tips a home buyer can follow to be more competitive in today’s seller’s market.
Cash buyers need a proof of funds when submitting an offer, but if you are financing your home or investment, get pre-approved. Prioritize obtaining your pre-approval. Put it at the top of your list. By having a pre-approval in hand, you will have the edge over those who have not taken the time to follow this step.
Do not confuse a pre-approval with a pre-qualification. A pre-approval is based on the buyer’s income, assets, and credit history. It carries more weight and shows you are a serious buyer. A pre-qualification is merely an indication of how much you might get without the review of your income assets and credit.
A buyer with a reliable pre-approval typically wins. If you need some reliable options for a pre-approval, feel free to contact me. I am happy to provide you with some options.
Find an Experienced Real Estate Agent.
An experienced agent will know how to deal with multiple offer situations, advise you on how to structure your offer, point out the pitfalls and provide advice on what you should offer.
Don’t Weigh Down the Contract
You need to strengthen your offer, not weigh it down. Avoid filling your offer with contingencies such as seller concessions, inspections, appraisals, and extended closing dates. Although your offer may be over the list price, contingencies will weigh it down. Offer contingencies that you feel meet the seller’s needs.
Cash offers and a quick close will strengthen a deal in several ways. With a cash offer, you can request a quick close. I have put as little as a one week close
On the contrary, a financing contingency means a close date of anywhere between 30 – 45 days out. If you want to strengthen your offer, choose a lender that has a record of closing homes in 30 days or less.
If you are an investor, you can strengthen your offer by finding a hard money lender that provides cash within 7 days. Eliminating the financing contingency with a quick close will strengthen your offer.
Reduce or Waive the Inspection Period.
Although I always recommend an inspection, there are times in which you can waive an inspection. If you are an experienced investor who has an established team of contractors for your investment projects, you can arrange for your contractor to do an on-the-spot inspection. Waiving the inspection contingency gives you an advantage.
In Florida, our sales contract defaults to a 15 day inspection period. If you are a financed buyer, reduce the inspection period to 10 days, or better yet, 5 days. The inspection period is your time frame in which you have the opportunity to do your due diligence and find out everything that is wrong with the house. If you are considering waiving the inspection because you want to save money, then I suggest you think twice about it. Depending on the home and what you chose to have inspected, the cost runs about $250-$600. Compare this to the potential cost of big-ticket items breaking down after you move in, and this cost becomes pretty insignificant. By reducing the inspection period, it will strengthen the offer.
Do not ask the seller to pay closing costs.
In a regular sale, it may be fine to request seller contributions, but when competing for highest and best, this weakens the offer.
Increase the amount of your escrow deposit.
As with any transaction, the more you have down in escrow, the more committed you are to the property. An escrow deposit is also referred to as a “good faith deposit”. It is your commitment that you will fulfill the terms of the contract. In the Sarasota, Florida area, a strong deposit is 10% or less. An experienced real estate agent will ensure that the terms of your contract protect your escrow deposit.
Add an escalation clause.
This clause states that you will increase your offer by X amount over the current highest offer up to a maximum price. For example, you submit an offer for $100,000 with an escalation clause that states you will increase your offer $1,000 over the highest offer price up to $105,000. This could be a risky tactic though. Here is why — if another buyer submits an offer of $102,000 but asks for a 3% seller contribution, their offer is technically lower, but your escalation clause now brings your offer to $103,000.
Bank owned properties typically do not entertain escalation clauses.
In a Nutshell….
If it is a sellers’ market, don’t underestimate their position.
There are fewer opportunities in today’s market. Do not make low ball offers.
Do not get stuck in the over analyzing mode because you will lose out. If you want the property, act quickly.
Avoid contingencies. Find creative ways to avoid weighing the contract down with contingencies, while still protecting yourself.
Don’t Give Up
If someone else receives the winning bid, consider making a back up offer. This puts you in