5 Ways to Win a Real Estate Bidding War without the Highest Bid

You may shortly find yourself in a real estate bidding war if you’re one of the many first-time homebuyers looking to buy in competitive markets like Austin, TX or Denver, CO. You may also think the only way to win the house is by putting in the highest offer. While this sounds like the right and possibly only strategy, you might be surprised when a homeowner selects a lower bid. 

Winning a real estate bidding war doesn’t always come down to price – there are actually many other tactics that are extremely effective. All-cash offers, pre-approval letters, and flexible timelines are all strategies that can beat out the highest offer. When you’re planning your bidding strategy, consider the following tactics to help make your offer stand out amongst the competition.

1. Get pre-approved for a mortgage

One of the first steps you should take towards purchasing a house is obtaining a pre-approval letter. A pre-approval letter states that a lender is willing to lend money up to a certain amount. These are typically acquired from a mortgage company or a bank. 

Getting pre-approved is almost always beneficial when buying a house, but especially if another buyer puts in a large offer during a real estate bidding war, but isn’t pre-approved. By having this letter, you can show the seller that you’re a qualified and serious buyer, even if you don’t have the highest bid. Pre-approval letters typically have an expiration date of 30 to 60 days, however, they can be updated with reverification of your information.

2. Go in with an all-cash offer

We’ve all heard the term “cash is king,” and when it comes to real estate bidding wars it’s no different. Having cash on hand means that mortgage companies don’t need to get involved, escrow closes faster, and you don’t have to worry about appraisals. All-cash offers show the seller you mean business and are ready to buy the house today.

3. Provide a flexible timeline

Flexibility around specific details in real estate transactions is nearly as good as offering the highest bid. Sometimes sellers need more or less time in the home than the typical 30-day closing period. If you are not in a rush to move, be flexible with your closing timeline and let the seller decide when works best for them. This can go a long way in a real estate bidding war especially if competing offers come in with hard deadlines. 

4. Eliminate contingencies during a real estate bidding war

Of course, there will always be contingencies when buying a house. Home inspections, financing, and appraisals are all important, however, you want to make sure that you aren’t overwhelming the seller by asking for too much. If you want to be the victor in a bidding war without the highest offer, you should remove as many contingencies as possible. However, it’s important to note that as you eliminate contingencies, you’re effectively taking risk off the home seller (which is why it’s a winning strategy) and putting it instead on yourself. 

5. Write a personal letter about why you are the perfect homeowners

Almost all sellers want to make sure their home is going to people that will take care of it and love it as much as they do. Including a personal offer letter, complimenting recent renovations, stating why you would be the perfect caretakers, and sharing what you love about the home, will help you stand out. It won’t always make a major difference, but this personal touch can help compliment an offer even if it’s not the highest bid. 

Real estate bidding wars can be extremely competitive, but implementing these five strategies can help your offer stand out. You should also consult with your real estate agent, as they may have additional insight on how to make your offer more attractive. In the end, the sellers are going to choose the offer that’s most attractive to them, so do whatever you can to make your offer the best on the table.

Source: redfin.com

10 Wild Home Inspection Photos That’ll Make You Go ‘WTF?’

Instagram is an endless trove of eye candy in the form of celeb selfies, cute pets, and cool home design ideas—but who would have thought that shocking home inspection photos of rusty toilets or electrical hazards would become Insta-famous, too?

That’s the kind of fare you’ll find on the unlikely but addictive account @bostonhomeinspectors, which boasts 13,600 followers and counting. Home inspector James Brock started this account five years ago at the urging of his teenage daughter.

Every day, Brock posts a new photo from his home inspections as a warning to home buyers on what they might encounter—but also just for laughs.

“I look for the humor,” he says. “I really love when people share their own funny captions for my pictures in the comments.”

Brace yourself for the 10 most memorable scenarios Brock has ever encountered during a day’s work.

1. A too tiny closet

“You can’t call a room a bedroom in a listing if it doesn’t have a closet,” Brock explains, “which might explain how this crazy sliver of a closet came to be.”

2. A bathtub that could fall to the basement

“I was standing in the basement, looking up at the bottom of the bathtub a floor above,” Brock recalls.

What he saw there “is really dangerous,” he says. “Someone cut out the framing and joists underneath the tub. The weight of the tub, water, and a person in it could send this plummeting. The buyer negotiated money off the sale price to fix this.”

3. An ‘in-law door’

Brock nicknamed this second-story door—with no stairs—”an in-law door,” he jokes. “It’s obviously very dangerous. It looks as if there was once a deck, or someone intended to add one. This needs a very good lock, at least, to protect, say, a child who might live inside that house.”

4. World’s wonkiest staircase

“These stairs were built to go up to a roof deck,” Brock says. “They are structurally sound, but completely not to code—there’s only a rail on one side. Imagine someone coming down from the roof, a little drunk. Very dangerous. This needed an architect or engineer to rebuild it.”

5. A toilet in the kitchen

“This is wrong in so many ways—completely illegal in terms of the sanitary code,” Brock says.

So why would anyone put their commode in the kitchen?

Brock says the toilet was there first, and in an effort to turn this basement into its own apartment, “someone had just built a kitchen around it. This was listed as a two-family house.”

6. Shocking hookups

“I don’t know if it was the electrician or plumber who did this, but these are way too close together,” Brock says. “What went through the mind of the tradesmen who did this, I don’t know, but it’s an electrocution risk, and the buyers got a credit to repair it.”

7. Loose ladder

“I don’t know what was going on with this—was it a fire escape from the deck?—but it’s a death trap,” Brock says. “Too tall, not secure, not anchored. It’s got to go!”

8. Fuzzy filter

“This is the air filter that was installed when this house was built five years ago,” Brock explains.

The reason it looks so gunked up? “Air filters are supposed to be replaced twice a year. Look what the sellers have been breathing in,” he adds. “This needs a professional cleaning, and the buyers shouldn’t pay for it.”

9. A ridiculously tiny ‘deck’

“This house was listed as having a deck,” Brock says. “And the ledger board shows you where the deck used to be. It must have been rotten, so they built that little thing.”

10. A toilet too close to the door

“Obviously, someone replaced a smaller toilet with a new one that’s way too big,” Brock says. “You can either swap in a smaller model, or notch the door.”

Source: realtor.com

First Time Homebuyer? 6 Home Buying Myths to Look Out For – Redfin

Buying your first home is often a dream for many renters out there. But with all the information about how to buy a home, it can be easy to believe some of the home buying myths. Whether you’re looking to buy a house in Seattle, WA, or a condo in Miami, FL, you’ve probably heard some of the myths surrounding how much you’ll need for a down payment or how high your credit score should be. 

Before you set your sights on your dream home, make sure you know just what separates the home buying myths from the facts. You may realize that you’re able to buy your first home sooner than you think.

home-buying-myths

home-buying-myths

MYTH 1: You need a 20% down payment

The biggest home buying myth for any first time homebuyer is that you need a 20% down payment to buy a home. In many cases, your down payment can be as low as 3.5%. Common types of loans with low to no down payments include FHA, VA, and USDA loans. With FHA loans – loans designed for individuals with a low-to-moderate income level and credit score- your down payment could be as low as 3.5%. For veterans and current service members, VA loans offer no down payment mortgages, and those looking to buy a home in a rural area may qualify for a no down payment USDA loan. 

Aside from loans, down payment assistance programs can help you lower the cost of your down payment. These programs are available nationwide, statewide, or locally in your county or even city. Down payment assistance programs provide a wide range of assistance types such as second mortgages, forgivable loans, or grants covering partial to full costs of your down payment. Your real estate agent or mortgage lender can help you determine what down payment assistance you qualify for. 

If you do have the means to purchase a home with a 20% down payment, there are benefits to consider. For starters, you won’t need to factor in private mortgage insurance (PMI) to your budget. PMI is an additional cost your mortgage lender may require if your down payment is below 20% and the cost is factored into your monthly mortgage payment. However, it’s always a good idea to talk with your financial advisor or wealth manager to determine your finances and whether a 20% down payment is the right option.

MYTH 2: Renting is cheaper than buying a home

One of the most common home buying myths is that renting is cheaper than buying a home. If you’re deciding whether to make the transition from renter to buyer, you might believe that renting is the less expensive option. However, in some cities the cost of renting a home may be less than or equal to a monthly mortgage payment.

If you’re serious about buying a home, you may end up saving money in the long run if you buy a house rather than continue renting. To compare the costs of renting versus buying a home, you can use a rent vs buy calculator to determine which option works best for your circumstances.

MYTH 3: Your credit score needs to be perfect

Home buying myths centered around credit scores often run rampant, specifically the myth that you must have a great credit score to buy a home. Luckily, that’s not always the case. If your credit score is at least 580, you may qualify for a 3.5% down payment FHA loan. For those looking at USDA loans, your credit score should also be a minimum of 580. VA loans actually have no minimum credit score, but instead require lenders to look at the whole loan profile of a homebuyer.

Generally speaking, if your credit score is higher you’ll likely have more options when it comes to qualifying for a conventional loan. With a higher credit score, you may also find that the terms of your loan or interest rates are better. However, just because your credit score isn’t great doesn’t mean your homeownership dreams need to come to a halt.

MYTH 4: All mortgage lenders offer the same rate

First time home buyers may have the belief that every mortgage lender will offer you the same rate no matter where you go. When shopping for a mortgage, it’s always a good idea to get more than one quote. Not every mortgage lender will offer you the same – or even the best- loan terms. To avoid making this mistake, it’s important to get quotes from several mortgage lenders and find the one that’s best suited for your finances and homeownership goals. 

MYTH 5: Home inspections are optional

Especially if there are bidding wars, it can be tempting to skip a home inspection to make your offer stand out. However, home buying myths like these may cause more issues down the road. More often than not, mortgage lenders will require a home inspection before you buy the home, so you may not even have the chance to consider passing on a home inspection.

In the case that your lender does not require an inspection, this doesn’t mean you should skip it. It’s important to know the condition of the home you’re looking to buy. That way you’ll be aware of any damage or issues the house may have before becoming the owner. If a home inspection does find any significant damage, you may be able to negotiate with the seller to repair the issues or lower your asking price. 

MYTH 6: The listing price is non-negotiable

A home buying myth that some first time homebuyers believe is that the listing price is set in stone. Depending on the housing market, you may need to be prepared to spend more than the home’s list price or negotiate for a lower price. If you’re buying in a seller’s market– where there are more buyers than homes available- you should be prepared to make an offer that’s higher than the listing price.

If it’s a buyer’s market- where there are more homes available than buyers looking to purchase- you may be able to negotiate for a lower price than what’s listed. Either way, believing the home buying myths about listing prices may cause you to lose out or even overspend on the home of your dreams.

Source: redfin.com

Expert Homebuying Tips for Buying in a Seller’s Market

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.

A row of houses on a cul de sac in a suburban neighborhood.
Getty Images

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.

6 First Time Home Buying Myths Debunked

Buying your first home is often a dream for many renters out there. But with all the information about how to buy a home, it can be easy to believe some of the home buying myths. Whether you’re looking to buy a house in Seattle, WA, or a condo in Miami, FL, you’ve probably heard some of the myths surrounding how much you’ll need for a down payment or how high your credit score should be. 

Before you set your sights on your dream home, make sure you know just what separates the home buying myths from the facts. You may realize that you’re able to buy your first home sooner than you think.

home-buying-myths

home-buying-myths

MYTH 1: You need a 20% down payment

The biggest home buying myth for any first time homebuyer is that you need a 20% down payment to buy a home. In many cases, your down payment can be as low as 3.5%. Common types of loans with low to no down payments include FHA, VA, and USDA loans. With FHA loans – loans designed for individuals with a low-to-moderate income level and credit score- your down payment could be as low as 3.5%. For veterans and current service members, VA loans offer no down payment mortgages, and those looking to buy a home in a rural area may qualify for a no down payment USDA loan. 

Aside from loans, down payment assistance programs can help you lower the cost of your down payment. These programs are available nationwide, statewide, or locally in your county or even city. Down payment assistance programs provide a wide range of assistance types such as second mortgages, forgivable loans, or grants covering partial to full costs of your down payment. Your real estate agent or mortgage lender can help you determine what down payment assistance you qualify for. 

If you do have the means to purchase a home with a 20% down payment, there are benefits to consider. For starters, you won’t need to factor in private mortgage insurance (PMI) to your budget. PMI is an additional cost your mortgage lender may require if your down payment is below 20% and the cost is factored into your monthly mortgage payment. However, it’s always a good idea to talk with your financial advisor or wealth manager to determine your finances and whether a 20% down payment is the right option.

MYTH 2: Renting is cheaper than buying a home

One of the most common home buying myths is that renting is cheaper than buying a home. If you’re deciding whether to make the transition from renter to buyer, you might believe that renting is the less expensive option. However, in some cities the cost of renting a home may be less than or equal to a monthly mortgage payment.

If you’re serious about buying a home, you may end up saving money in the long run if you buy a house rather than continue renting. To compare the costs of renting versus buying a home, you can use a rent vs buy calculator to determine which option works best for your circumstances.

MYTH 3: Your credit score needs to be perfect

Home buying myths centered around credit scores often run rampant, specifically the myth that you must have a great credit score to buy a home. Luckily, that’s not always the case. If your credit score is at least 580, you may qualify for a 3.5% down payment FHA loan. For those looking at USDA loans, your credit score should also be a minimum of 580. VA loans actually have no minimum credit score, but instead require lenders to look at the whole loan profile of a homebuyer.

Generally speaking, if your credit score is higher you’ll likely have more options when it comes to qualifying for a conventional loan. With a higher credit score, you may also find that the terms of your loan or interest rates are better. However, just because your credit score isn’t great doesn’t mean your homeownership dreams need to come to a halt.

MYTH 4: All mortgage lenders offer the same rate

First time home buyers may have the belief that every mortgage lender will offer you the same rate no matter where you go. When shopping for a mortgage, it’s always a good idea to get more than one quote. Not every mortgage lender will offer you the same – or even the best- loan terms. To avoid making this mistake, it’s important to get quotes from several mortgage lenders and find the one that’s best suited for your finances and homeownership goals. 

MYTH 5: Home inspections are optional

Especially if there are bidding wars, it can be tempting to skip a home inspection to make your offer stand out. However, home buying myths like these may cause more issues down the road. More often than not, mortgage lenders will require a home inspection before you buy the home, so you may not even have the chance to consider passing on a home inspection.

In the case that your lender does not require an inspection, this doesn’t mean you should skip it. It’s important to know the condition of the home you’re looking to buy. That way you’ll be aware of any damage or issues the house may have before becoming the owner. If a home inspection does find any significant damage, you may be able to negotiate with the seller to repair the issues or lower your asking price. 

MYTH 6: The listing price is non-negotiable

A home buying myth that some first time homebuyers believe is that the listing price is set in stone. Depending on the housing market, you may need to be prepared to spend more than the home’s list price or negotiate for a lower price. If you’re buying in a seller’s market– where there are more buyers than homes available- you should be prepared to make an offer that’s higher than the listing price.

If it’s a buyer’s market- where there are more homes available than buyers looking to purchase- you may be able to negotiate for a lower price than what’s listed. Either way, believing the home buying myths about listing prices may cause you to lose out or even overspend on the home of your dreams.

Source: redfin.com

How To Make an Offer on a House: A 9 Step Guide

You’ve found your dream home and you’re ready to take the next step toward making it yours. After preparing and saving for your big purchase, it’s time to learn how to make an offer on a house. Offer letters are sales contracts and are legally binding, so it’s important to take this process seriously.

Find out everything you need to know about making an offer on a house with this guide. Below is a quick overview of the offer process. Feel free to click on each one to jump to everything you need to know about that step.

Steps for Making an Offer on a House:

  1. Determine you can afford the house and decide to make an offer.
  2. Talk with your real estate agent about comparable homes before making an offer.
  3. Your real estate agent compiles a written offer.
  4. The written offer is sent to the seller’s agent.
  5. The seller replies and your offer is accepted, countered, or declined.
  6. Learn how to compete with multiple buyers.
  7. The closing process begins when your offer is accepted.
  8. Remember to negotiate before finalizing if contingencies reveal flaws with the house or deal.
  9. Once your offer is accepted, you finalize the contract.

What to Know Before Making an Offer on a House

In addition to researching the process of making an offer, learn these key tips to keep in mind throughout.

things-to-know-before-making-an-offer-on-a-house

  • Try to sell first and buy after. If you aren’t a first-time homebuyer, it’s a good idea to sell your current home before buying a new one. This is important if you’re using the sale of the old home to purchase the new one.
  • Scope out the local market. Your real estate agent will use information on similar houses for sale in the area to put together your offer.
  • Ask about other offers. Your agent does this for you. Sometimes the seller’s agent won’t disclose this, but this information can inform your offer.
  • Learn about the house. If there are problems with the house, you’ll want to find out and keep them in mind when you make an offer.
  • Know what the seller wants. Have your agent find out what appeals to the seller and try to include it in your offer. If the house still has a mortgage, offering an early payment can help tip the balance in your favor.
  • Act fast. For the best chance at your dream home, submit an offer quickly. Don’t wait around because someone else will likely snap it up if you hesitate.

Step 1: Determine Affordability of the House

Finding your dream house is the easy part. Figuring out if you can afford it takes a hard look at the numbers. Set a home budget beforehand and be strict about sticking to it when looking at houses. To gauge what your budget should be, a majority of lenders advise that you shouldn’t spend more than 28 percent of your monthly pre-tax income. Be sure to include your estimated monthly payment plus other costs like the down payment, HOA fees, home insurance, and property taxes in your budget.

When you go through the lending process, lenders can help you determine what is affordable. If you’re not there yet, use this home affordability calculator to see if your dream house is in your budget.

Step 2: Talk with Your Real Estate Agent

Making an informed offer is the key to giving you the best chance of getting the house you want. Speak with your real estate agent about what comparable homes in the area are going for and use this information to guide your offer.

Step 3. Compile an Offer Letter

After comparing similar houses for sale, you’ll work with your agent on your offer. There are many components to an offer letter. We discuss everything that is included, how to navigate your offer price and contingencies, and tips for making an offer they can’t refuse.

What’s Inside an Offer Letter

Offer letters are legally binding sales contracts, and it’s important to be thorough about what you include.

Typical Components of an Offer Letter:

  • Offer price: This is the amount of money you are willing to pay for the house.
  • Contingencies: Conditions that the seller must abide by if and when they accept your offer. Standard contingencies include a home inspection and appraisal. Jump down to learn more about contingencies.
  • Down payment: The amount paid for the home upfront. This can be anywhere between 3 to 20 percent when paired with a conventional loan.
  • Earnest money: This is a deposit made by the buyer to demonstrate good faith on a contract to buy a home. It’s generally a small percentage of the price and is held in escrow until the offer is closed. It’s usually applied to the down payment or closing costs once the offer is accepted.
  • Closing costs: These include all costs associated with purchasing a home. Read more on some of the common closing costs like inspection and loan origination fees.
  • Timeline: You’ll include your preferred closing date, as well as the closing date of your current home if you aren’t a first-time buyer.

How Much Should You Offer?

Figuring out how much you should offer depends on what you can afford and what kind of market you’re dealing with at the time of the purchase. Your real estate agent should guide you through making an offer, but ultimately, you are the one who decides what you’re willing to pay. A good rule of thumb is that your first offer should leave some room for negotiation, so don’t give away what you’re willing to pay right away.

buyer-vs-sellers-market

Making an Offer in a Buyer’s Market

In a buyer’s market, you have more power to negotiate because there is more supply than demand. With the bargaining advantage on your side, you can feel more comfortable making an offer below the asking price. If you do offer below asking price, negotiation is a typical response.

When offering less, it’s also important to be respectful of the seller. Offending them with an outrageously low offer could result in them rejecting and you losing your dream house.

Making an Offer in a Seller’s Market

A seller’s market is when the housing demand exceeds the supply. In this situation, you will not have the bargaining advantage, and you will be competing with others for attractive properties. If you can afford it, exceeding the seller’s asking price can help you stand out among other offers. Remember to keep your budget in mind when negotiating and don’t offer an amount you can’t afford.

Contingencies

Contingencies are conditions of the purchase that get outlined in your offer and must be met for the sale to go through. If they aren’t met, based on the contingency, either the buyer or seller can cancel the sale. About 74 percent of buyers include contingencies in their offers, so let’s discuss the standard ones below.

Home Inspection Contingency
A home inspection contingency exercises your right to have the property inspected before closing the sale. If the inspection reveals problems with the house like faulty plumbing or a compromised structure, there is room to remedy any issues before you close. You can negotiate for a lower price, ask the seller to make repairs, or even back out of the offer.

It’s not advisable to forego a home inspection contingency to make your offer more attractive. This could cause you to pay more for a damaged property and could cause financial problems down the line if you find out there are major issues with the house that are costly to fix. Home inspections prior to closing are always recommended.

Home Appraisal Contingency
A home appraisal contingency verifies that the price you are paying is fair compared to the home’s market value. In the event that the house you are buying is appraised as lower than the selling price, you are able to negotiate with the seller or cancel the contract. This is recommended to prevent you from paying more than you should for a house.

Home Sale Contingency
In case you need to sell your current home in order to finance a new one, you can make a home sale contingency. This contingency stipulates that the current house must be sold before the new purchase can close.

Home sale contingencies aren’t attractive for sellers, as they cause delays and discourage other offers. A clause can be attached to this contingency by sellers to include a sell-by date. If your house hasn’t sold by the date in the clause, the seller is legally able to move on with other offers.

Financing/Mortgage Contingency
A financing or mortgage contingency allows the buyer time to secure financing from a lender. For buyers, this provides insurance that they can cancel the sale and recover their earnest money in case their financing options fall through.

This contingency is usually given a specific timeline, and the buyer can end the contract before time expires. If the buyer has not secured a mortgage and fails to cancel the contract before the allotted time is up, they will still be obligated to purchase the property.

Tips For Making an Offer They Can’t Refuse

When making an offer on a house, remember to appeal to the seller by using these tips to make an offer they can’t refuse.

  • Make an offer in cash. If you have the savings and can afford to make an offer in cash, you can forego the financing contingency. This means less delay in the sale, and it can also help you compete with higher offers with more contingencies.
  • Propose a short closing period. If you’re willing to move quickly, offering a short closing period can appeal to a seller who needs to sell fast.
  • Pay some of their closing costs. All sellers will have closing costs when the sale goes through. Paying off some of those costs can help sweeten the deal for them.
  • Offer up more earnest money. More earnest money shows you’re serious about the home. It’s also more money in the seller’s pocket upfront.
  • Write a personal letter. Homes are very personal and sellers may be emotionally attached to them. Make an emotional appeal by writing a personal letter to tell them the home will be in good hands.

write-personal-letter

Step 4. Submit Your Offer

Once you have decided on an offer, your real estate agent will write up a purchase and sale agreement. You will sign this agreement and then they will submit it to the seller’s agent. This agreement is legally binding if the seller agrees.

Step 5. Review Seller’s Reply

A seller can reply in a couple of ways. They can accept, counter or decline. Let’s walk through what to do with any of these three responses and what to do when there’s another buyer.

What to Do When They Accept

Congratulations — they’ve accepted your offer! You can now move on to Step 7 of the offer process. As long as all contingencies are met, you are buying a house.

What to Do When They Counter

The seller might not have liked your offer exactly how it was written and they can counter. It’s then up to you to accept that offer or to start negotiating by countering again. You are also free to back out of the offer if you aren’t happy with the seller’s counteroffer.

If you do end up negotiating, it’s normal for there to be a back and forth of counteroffers. You are both working to come to an agreement on price, timeline, and contingencies, and this takes time.

What to Do When They Decline

Unfortunately, if the seller declines, you won’t be buying that particular house for what you offered. If there is room in your budget, you could attempt to make a more attractive offer. About 45 percent of buyers end up making multiple offers during the buying process. However, not every budget allows for a better offer.

A declined offer is a disappointing outcome, but it’s important to be respectful of the seller’s decision. Take the time to talk to your real estate agent and learn about what can be done differently when the next opportunity comes around.

Step 6: How to Compete With Multiple Buyers

In a competitive housing market, desirable properties will attract many buyers. Here are a few potential scenarios that can play out if a seller receives multiple offers.

Multiple Buyer Scenarios:

  1. If your offer didn’t compare with the others, they may decline you and pursue other offers.
  2. If your offer was one of the better offers, they may ask each buyer to return with their best offer and make a decision among those final offers.
  3. They may allow a bidding war to see who will come up with the best offer.

Strategies for Competing With Multiple Offers:

  1. Be flexible with your contingencies. Keep important ones like the home inspection and appraisal, but figure out which ones aren’t necessary for you.
  2. If there is room in your budget, add an escalation clause. This notifies the seller that you will outbid the highest offer up to a maximum amount. This shows you are serious and keeps you competitive price-wise.
  3. Mention preapproval for a mortgage if you have it. The more likely you are to obtain financing, the more attractive you are as a candidate.
  4. If you can afford it, increase your down payment or earnest money deposit.

To keep everything professional, remember that your real estate agent should facilitate negotiations directly with the seller’s agent.

Step 7: Start the Closing Process

The closing process begins when a buyer accepts your offer. This process includes all necessary actions that must be done to move the transaction forward like reviewing what you owe, authorizing documents, and transferring the title. For an in depth walkthrough of this process, check out this guide for closing on a house.

Step 8. Negotiating After Your Offer is Accepted

When a seller accepts your offer, you will first move forward with any contingencies. If anything is wrong with the house or deal, you have the ability to negotiate or even walk away. Here are some examples of negotiations based on contingencies:

  • If a home inspection reveals flaws with the house, you can ask for repairs to be made by the seller before the deal is closed so that the financial burden doesn’t fall to you.
  • If the home is appraised to be lower in value than the accepted offer price, negotiate for a lower, more appropriate sale price.

Step 9: Finalize Your Contract

When negotiations have ended and you are satisfied with your contract, you will sign to finalize your purchase. Once you sign, the contract is legally binding.

After you make it through the final step, it’s time to celebrate! Revel in the excitement of purchasing your dream home, and know that you just took a big step toward a new life. Keep up good saving and budgeting habits so you can continue to hit your financial goals in the future.

Sources: Investopedia

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