This has been a fast paced summer for house hunting – and with rates holding below 3% for most qualified buyers, it looks like fall holds more of the same! So how do buyers make their offer stand apart from the rest, when there are fewer listings available to go around?
There are a few tips and tricks that can help you present the most attractive offer, even when you can’t always outbid your competition. . .
• Have Full Pre-Approval – A step beyond pre-qualification, a pre-approval involves submitting your full application to underwriting in advance of actually finding the property you’ll be purchasing. Your lender will collect all your financial data and submit for review, basically ensuring that no surprises will pop up on the financing side of things as the deal progresses.
• Increase the Earnest Money – Earnest money is the deposit held by the title company and then applied toward the funds you’ll need to complete the purchase. Held by the title company until closing, typically, these funds are due to be delivered within 3 days of an accepted offer (but can be retained by the seller should you default on your purchase contract!). Most of the time this deposit amounts to between $500 and $1,000, but if you really want to show the sellers that you are committed, there’s no harm in putting your money where your mouth is. Literally!
• Add an Escalation Clause – In a bidding war, it can be difficult to know what to offer because you want to outbid the competition without going too high. An escalation clause is one way to automatically outbid the others. The clause typically offers an amount—$1,000 for example—higher than any verifiable offer up to a specific amount. This can ensure yours is the highest offer. The caveat here is that you don’t want to risk over-paying for your home, so make sure your agent researches the true market value, and understand going in that there may be issues with an appraisal should the home not be worth as much as its purchase price.
Which leads us to. . .
• Pay any Appraisal Shortage – When offering more than asking price, sellers rightfully become concerned about the appraisal coming in too low. Appraisers work closely with recently sold comparable properties, and very likely won’t allow a bank to fund the purchase of a home if they can’t find a recently sold comparable coming in close to your proposed purchase price. If you are willing to pay over market value, include the amount of shortage you are willing to pay right up front. This will put the seller’s mind at ease, and show that you are pot-committed, so to speak.
• Tighten the Inspection Contingency – A standard Florida purchase contract offers buyers 15 days to perform their home inspection. I know personally as a listing agent, I try to close that up considerably – that’s more than two weeks where my listing can be off the market, and the buyer is free to walk away at any point and take their deposit with them!
So, as a buyer, a great way to show your seller that you mean business is to go in with a nice, tight inspection period. This tells them that you aren’t wasting anyone’s time, and are working to get this deal to closing just as quickly as they are. This is a move I often urge my buyers to take, and can make a huge difference in a seller’s willingness to work with your numbers.
And those are some of my favorite tips and tricks to strengthen your offer in ways that outsmart, without necessarily outspending, the competition!