According to buyer protection laws in most states, sellers are required to report any findings in home inspections to subsequent buyers. In other words, if an inspector finds something wrong with the house, the seller will have to deal with it one way or another— either with you, or the next buyer should you choose to drop out of the deal.
When trying to woo your seller in a competitive market, it helps to make a generous earnest money deposit. An earnest money deposit is a good-faith deposit requested by the seller when you enter into a contract to buy the house and typically run anywhere from 1% to 3% of the sale price of the home.
This might sound crazy, but making a good impression on your new neighbors can actually make a difference when it comes time for a seller to review offers.
Get a Pre-Approval Letter
Larissa Runkle is a contributor to The Penny Hoarder.
Another way to win over your seller (and prevail in any bidding wars) is by keeping your contingencies to a minimum.
“In a really aggressive seller’s market, a home buyer who has to sell a current property should do so before placing an offer on another home,” said Jason Gelios of Community Choice Realty. “Don’t always assume that the seller will take the highest price. Other conveniences can play a factor in gaining the seller’s attention, especially things like faster closing times and less restrictions.”
In order to be competitive in a hot seller’s market, you will need to line up your financing in advance.
Source: thepennyhoarder.com
Be Friendly With Neighbors
Let’s say the listing price on your dream home is 0,000 and you’re able to put down a 6% down payment. That leaves you with a mortgage of roughly 1,000. For a 30-year fixed mortgage at an interest rate of 3%, that translates into ,269 monthly payments. Now let’s say you decide to bid a little higher on the home and offer ,000 over asking price. This would only bump up your monthly payment (assuming you qualify for that low interest rate) by .
Contingencies are the contractual stipulations buyers and sellers must meet before the deal can close. Unsurprisingly, sellers don’t like to have too many of them to deal with. Contingencies can include such things as requesting a seller to make certain repairs, getting a home inspection, or even the fact that you’ll need to sell your old house before being able to buy the new one.
If that sounds fast, it is. But by the time we submitted our offer, the seller already had three others. This is where it helps to have a great real estate agent on your side.
Submit an Offer Quickly
I was in this exact position last fall. Here are seven key takeaways from my experience buying in a seller’s market.
While my partner and I didn’t make the highest offer on our house, we did have the fewest contingencies — mainly, we didn’t ask too much of our seller in the way of repairs, or have another house to sell in order to afford the new one.
After you’ve seen a house, and decided you love it, be prepared to submit an offer quickly— as in, ASAP.
Buying a house is a big decision, but it can feel especially overwhelming to place an offer on a home less than 24 hours after seeing it for the first time. Plus you’re under pressure to outbid several other buyers — or risk losing the house.
“It’s important to understand that the strength of financing is a key consideration a seller takes into account when selecting an offer,” said real estate developer Bill Samuel.
Minimize Your Contingencies (Within Reason)
Work with your real estate agent to determine how many other offers the seller already has (or expects to get) and then be prepared to draft something up that day. In our case, we toured our home for the very first time at 11 a.m. on a Monday — it came on the market the evening before — and made an offer by 4 p.m. that same day.
Work with your real estate agent to find out what matters most to the seller — is it money, closing quickly, something else entirely? Then make sure your offer addresses their needs.
“Having a realtor who can get your offer submitted quickly is crucial,” said Erik Wright, owner of New Horizon Home Buyers. “You want to get your offer in front of the seller first, and make it strong. Purchase price is the obvious factor and in a competitive market, houses often go for over asking price. However, a strong offer has several factors and it depends on what’s most important to the seller.”
Wait. Why would anyone make an offer that’s above asking price? Because the competition did it first, and in a hot seller’s market, offering above asking price is often what it takes to even be considered.
In a hot seller’s market, you’ve got to be ready to move fast. Often this is more of a change in mindset than anything else. When my partner and I first started looking at homes, we considered ourselves casual buyers — that is, until our dream home came on the market late one Sunday night. From there, things moved quickly. We saw the home, made an offer, were under contract by morning, and spent the next month and a half going through the process of closing on the house.
Besides all the usual suspects, like saving up for a down payment and improving your credit score, you’ll also want to get a pre-approval letter from your bank. It states that a bank would approve you for a mortgage of a certain amount, and acts as a guarantee to the seller that you can actually afford to buy their house.
Make a Generous Earnest Money Deposit
This is where it helps to know your budget up front.
When deciding how much of an earnest money deposit to include in your offer, keep in mind that whatever amount you give comes off the price of the home (and is returned to you if the deal falls through). In other words, there’s no reason to be cheap. If you can, go slightly above the seller’s requested deposit amount. Even if it’s just a little more than what they’re asking, that gesture of good faith might just be what gets you the house.
Offer Above Asking Price
Since you’ll likely be visiting the home at least once before making an offer, be prepared to talk to any neighbors you might run into. In close-knit neighborhoods, or ones where people share resources (like an HOA), sellers might care a bit more about the type of person they sell the house to.
If you’re serious about finding your dream home in the next few months, the best thing you can do is know what you want from the outset, and get your ducks in a row to make a compelling offer when you find it. Maybe this means making a list of your must-haves in a house, and working to improve your credit score. It might also mean reaching out to a real estate agent before you need one, and getting that pre-approval letter in place.
No seller wants to risk accepting an offer that might fall through. Aand since pre-approval letters can take some time to get, have one ready before you find your dream house.
Lace Up Your Running Shoes
Upping your offer may not break the bank as much as you’re fearing. “With interest rates so low these days, offering more than what the seller is asking may not make a drastic difference in your overall monthly payments,” real estate agent Pavel Khaykin of Pavel Buys Houses said.
All that said, there are certain contingencies you should never forgo, and a home inspection is one of them. Getting your home inspected is hugely important, since inspectors will often find things even the sellers weren’t aware of. No matter how much you love a house, don’t be afraid of exercising your right to an inspection.
Although inventory is low, new houses come on the market all the time.
If you happen to meet a neighbor when visiting the home, introduce yourself and make a good impression. You never know how much their opinion of you might factor into any final decisions.
While these circumstances might sound extraordinary, they’re not. With housing inventory nationwide at an all time-low — down 22% from last year according to the National Association of Realtors — it’s no wonder buyers are competing for the same few houses.