In the “new normal” that is the current housing market, prices aren’t what they were at their peak, but inventory is at historic lows. Those factors are creating a ‘perfect storm’ of bidding wars between potential buyers.
Here are 10 tips on how to become the most desirable buyer you can be – and create an compelling offer that wins the multiple offer war.
1. Cash is king – Investors have been snapping up homes to flip or rent, and they usually come to the table with cash. Sellers love all-cash offers because they’re less likely to fall through before the sale closes. Bring as much cash to the table as makes sense for your personal financial situation.
2. Start 4 months ahead. If you can’t pay cash, you’ll need to get a mortgage. Three or four months before you shop for a home, check your credit reports. That will give you time to dispute any errors and take short-term steps, such as paying off debts. That will improve your credit score and get you mortgage ready.
3. Get pre approved – Then get a bank’s pre approval. It will show sellers that a lender has verified your income and credit score and determined you can afford payments on a mortgage for a certain amount.
4. 20% down payment – Any less than that is going to put you out of the running against all cash offers for sure. At least with 20% and a pre approval letter you will still have a shot. Your options for mortgages get pretty slim if you can’t come up with 20% down, since many banks won’t loan on less than 20% down.
5. Have all your paperwork in order – When submitting your offer, be prepared to show your proof of funds and where your cash is coming from, along with that all important pre approval letter
6. Forget lowball offers, make your best offer now – You may only have one shot to get it right, so make your best offer! Base your offer on recent sale prices of comparable properties in the neighborhood so that it will pass muster when the property is appraised. If you hold back, thinking you’ll sweeten the offer on the second try, you may lose the property to another buyer.
7. Keep contingencies reasonable and short – Some people give advice to drop all contingencies. Bad move! Most sellers prefer offers with no contingencies, but you probably can’t afford to forgo the protection that contingencies provide if you want to cancel the contract. Offset a financing contingency with pre approval and a strong earnest money deposit. Include a home-inspection contingency, but tell sellers you will get it done within 7 – 10 days at the most. That way, if the price tag on those repairs gets out of hand, you can back out of the deal but not tie up the property for too long.
8. Escalator clause – This is a newer, yet old technique, with which you agree to increase your offer if there’s a higher bid from another buyer. Thus you can write into the contract that you will offer $1,000 or $5,000 more than the highest offer submitted. Caution: Make sure you have a cap on that total amount – or you could be in for sticker shock.
9. Write a love letter to the sellers – Re/Max agent Gayle Henderson, of Scottsdale, Ariz., says this will help you connect with the sellers, especially if you haven’t met them. She suggests such points as: “We’re relocating from…” “We see ourselves living in your neighborhood or chose your schools because…” “We especially love…” and “We appreciate you accommodating our visits.” Make them feel as though you’re very connected to their home and will take great care of it.
10. Find out the seller’s timeline and offer to meet it – Express your willingness to work with the seller’s timetable to go to closing. If the sellers want to remain in the home for a while after closing, offer them a “lease back” or “rent back,” which means that you will be their temporary landlord. This is a legal arrangement, and you’ll need to work out the details with your agents and be sure that the sellers keep their homeowners insurance during their stay. If you are bidding on a short sale, make clear to the sellers that you are patient and can wait for the bank’s decision.