Buying Your Home in a Competitive Market
9 Tips for being a Successful Home Buyer in a Competitive Seller's Market 2021
I'm not sure about where you are, but here in Colorado Springs, Colorado and surrounding areas the housing market is hot. Smoking hot. I am hearing similar reports from our networking agents all across the country. With historic low interest rates along with pent up demand stored up by a global pandemic, inventory is simply not sufficient to meet the current demand of incoming home buyers. While Colorado Springs may not have the tightest market around, it is pretty serious business to buy a house here right now. Home Bidding Wars are a frequent occurrence. This is what we consider to be a "seller's market". Which, could be simply defined as: It's a great day to be a seller in Colorado Springs!
But what if you are the buyer? Don't worry, while it might not be the most laid back house shopping experience you've ever had, you can do this! Totally doable! Let's get you up to speed with these 9 Tips to help you on your way to successfully buying a house in a seller's market.
#1 Be Ready to Play Ball
Do you realize that just being READY will put you ahead of most buyers? YUP! It's true. Many of the people out there trying to shop in this market, quite honestly, do not have much of a chance to buy a house. In a competitive market, you must be ready. Not in the process of getting ready, or planning to get ready IF you find something you love. For those who are thinking this way, when they do find the one, they will be scrambling to get their ducks in a row while you hand the seller your tidy paper work.
Have your finances in order. If you are going to finance this house, at a minimum have your letter of pre-qualification and if possible go ahead and get fully qualified. If you are a cash buyer, have your proof of funds letter in hand. If you need to sell your home before you will qualify.. sell it. At a minimum, have it on the market. It should also be priced at a number it will sell for in a reasonable amount of time in your current market. Submitting an offer conditional on the sell of your current home is a disadvantage. However, you can over come this. You will not be the only one with this obstacle! While cash buyers will have the upper hand, you can strengthen your conditional offer by having a market analysis from your agent showing average days on market for homes comparable to yours. Any seller's agent worth their salt will be digging into those details before advising the seller to consider your offer. Being a step ahead of the inevitable will make your offer stronger than someone who can not produce this information quickly.
Taking care of the items in Tip #1 alone has won many a house this year!
#2 Don't be Late to the Game
Be ready to roll. When a house comes on the market that looks promising, if at all possible, be there day one. Do not wait until this weekend etc. Don't assume you will have time to make a second visit with your spouse later in the day. While you may, you also may not! In a competitive market, come early and come ready to make a decision. While getting your offer in early is good, unfortunately, being first and even submitting a full price offer does not necessarily mean you will get the house. Sometimes it really is that simple, sometimes not so much. Seller's can hold all offers with the anticipation of additional offers. They can even use your offer as a bench mark to improve future offers. This is often done when the potential of a Bidding War is high. You may be told, "The seller will consider all offers on Saturday" or something similar. Before submitting any offer, you can ask if the seller will agree to respond to your offer quickly. In this case, your offer could be written with a short response time associated with it, such as due by midnight tonight etc. This can be a very effective strategy if you are the first and only offer of the day. This is especially effective if you are putting in a strong offer at or slightly above asking with no conditions or simple conditions that are not overly risky for the seller. Bidding War averted. You will just have to decide if you want to continue with the house if the seller is set on seeing multiple offers.
#3 Don't Mess Around
Have your buyer's agent confirm what the market value of the house is, and advise you. Then put in a strong offer with as short a response time as seems reasonable under the circumstances. A competitive market is no time to try to see if you can save a few bucks. If you really want the house, do not assume you will be able to go back and forth with counters until you come to a pricing agreement with a seller. This is not the time to test your negotiating skills. You are more likely to open the door for competitive offers by keeping the deal open longer. Every time you or the seller counters an offer instead of signing it, you open the door for someone to come in with another offer. Get to agreement as quickly as possible and sign. A signed contract is the only thing that closes the door to additional competitive offers.
#4 Have a Solid Competitive Bid Strategy - Just in Case
If the circumstances point to potential competitive offer(s) being able to move in before you can secure the house with a contract, be proactive. You do not have to wait for competition to engage before you address them. In fact, you may not get a second chance to improve your offer. If a better offer comes in before you are able to get your offer signed, you may just get bumped out of the race. Fortunately, there are ways to circumvent competitive offers up front without paying any more than necessary. You can add what is called a pricing "escalation clause". With an escalation clause, you offer what you think you will be able to get the house for, but you then add an "up to" amount to out-bid any competing offers in a predetermined increment. For example, you may agree to pay up to $2,500, $5,000 or $10,000 over any competing offer up-to a set amount. If you really do not want to risk loosing the house, and you are okay with the extra premium to get it, I would not go too low on this amount. Remember, you may not be the only one with an escalation clause. $500 may not be enough to put any additional escalation clauses out of the way. However, the beauty of this tactic is, that if no one steps up, you will not be required to pay any more than your initial offer.
#5 Do Not Counter - Once You are in Keep the Door Closed!
Some people just like to counter. No matter what you propose, regardless of how fair, well thought out, and seemingly perfect it may seem to be to you, they will counter. Counters keep the deal door open. Sometimes counters can open the deal back up for a couple of days! In a competitive market you want to come to agreement as quickly as possible, close the door and keep it closed! You never know how many competitors were late to the game and hoping that door will crack back open. Even during the inspection period this "opening of the deal door" can inadvertently cost you the house. For example, if you approach the seller with a lengthy list of minor repairs that you would now like to see corrected prior to accepting the house, they can simply refuse. While it is not common, it is technically possible, that the seller could even move to a back up offer instead of moving forward with you. So, keep in mind, that every time you open the deal door, you risk a competitive intruder stepping into your deal.
#6 Skip the Love Letters
At one time it was recommended to attach what is referred to as "a love letter" with a competitive offer. Seller love letters are meant to sway the seller to favor your offer simply for emotional reasons. For example this letter may tell the seller how much you love their home more than your second born 😉 , your mother lives right across the street, and your church is less than a mile away. While this may sound like a worth while competitive strategy, this practice is no longer recommended. In fact, in recent years Colorado real estate professionals have been warned to protect sellers from considering these "love letters". There are many laws out there today protecting us from discrimination. Someone can not refuse to sell you their house based on your religion, color etc. Personal letters often inadvertently provide clues about you and your family. If your offer is ultimately declined for any number of reasons it removes the seller from scrutiny to have never had access to unnecessary personal information about any of the perspective buyers. If you like the idea of reaching out to the seller with enthusiasm for the house, it would be fine to tell your agent to convey your love for the home and express the desire to be given the opportunity to meet any competitive offers with a response.
# 7 Make Your Mother Proud - Use Your Best Manners
It may sound overly simple, but alas, it is not. When someone comes into a bidding situation who is simply hard to deal with, they are not likely going to get the house. This is not only referring to a buyer, but also their chosen agent that represents them. It is important for the seller to pick a deal that will be able to get all the way to the finish line. No seller wants to loose precious time in a hot market by having to start over in 4-6 weeks because the deal fell through. It can be very costly and inconvenient to loose a deal prior to closing. To get a deal all the way to the finish line the first time around is the goal. Cooperation and a good working relationship is not only appreciated, it is instrumental in the success of a transaction.
This is the perfect time to shine! How hard will it be to just be nice? Trust me, everyone who shows up to a bidding war did not have a mother as smart as yours! Choose your language carefully and you can gain some serious ground. Just saying things like, "We are flexible on the closing date" or "That is not a deal breaker for us" shows that you are ready to play nice and get this deal done. Being cool under pressure is a strong asset in a competitive market!
#8 Sweeten the Pot
Think of your offer as a well thought out recipe. Don't forget to sweeten the pot! Every seller has unique goals beyond getting a good sales price. In fact, some have things that are more important to them than the highest final number. While one seller may be hoping to move as fast as possible, the next may be worried about having time to find their next house. Some are tight on cash and are concerned about inspection items causing pre-closing expenses. Most would like nothing more than a worry free transaction that is going to go through without a hitch. You may even have one that is secretly hoping to sell their furniture with the house. The list goes on and on. A savvy buyer's agent should be looking for these seller hot buttons. Don't be afraid to ask if there are preferred conditions that would make your offer more appealing to the seller. If you can easily meet any of them, this would be a great additional ingredient to your offer.
4 Ways to Sweeten a Comptetive Offer
There are several ways you can sweeten the offer. Your tolerance for risk may determine which are interesting options for you.
- Consider finding ways to address the seller's personal "hot button" items in your offer. (Your competition may not even know about this wish list.)
- Cover the portion of the closing cost normally incurred by the seller. Its a simple gesture but it may come across as a better offer than the offers holding the seller to cover that expense.
- Agree to abide by your offer even if the appraisal comes up short. This is known as offering an "Appraisal Gap Guarantee". The appraisal is where a deal can be lost by the Seller. This is a big concern for sellers in a competitive market bidding war. For example, a buyer (like you) has agreed to pay $5,000 higher than the original asking price. The offer is accepted but now the appraisal comes in for the original asking price or even below. If you are financing, the bank is not going to up the loan to down payment ratio to cover the difference. There are three choices here. The seller lowers the price, the buyer brings more cash to the table, or the deal dies. Agreeing up front to bring the additional cash to the table with an "Appraisal Gap Guarantee" (up to a certain dollar amount if you so choose) will make your offer more appealing than the one that did not agree to do so. If you are a cash buyer, hopefully you and your agent have already done your homework. Have a good understanding of what the home is worth and determine if you are willing to pay what you offered regardless of the appraisal. In fact, as a cash buyer, you can choose to waive the appraisal altogether.
- Agree to limit the inspection risk to the seller. Inspections are another area where a deal can be lost. Inspections are also important and they protect you, but you can weigh the risk to reward. Perhaps you agree to handle any inspection items that come up yourself unless they involve structural integrity issues, safety or major mechanical. Some people choose to waive the inspection right all together. This is risky but if you are willing to take a chance on the expenses you may incur from that decision, this strategy is certainly effective at making an offer more attractive.
Coming up with a simple deal sweetener may be just the bump your offer needs to get it to the top!
#9 If You Don't Get it - Be a Gracious Back Up
Even if you and your agent did everything right, sometimes someone simply puts in a stronger offer. On average, one in three of every Colorado real estate deals fall through. This is an important statistic to keep in mind if you get the dreaded call that you did not get the house you really wanted. Be prepared with a response should you get that call. First, consider simply congratulating the winning offer and welcoming a call if anything happens with the deal. You can also go further to improve your backup position by putting in an official back-up offer. Your offer does not have to be the same as the one previously submitted. You can lower it, you can raise it or revise it in anyway.
Bidding wars are a funny thing. You can have 5 people ready to buy the day of the bidding, then ZERO of them interested 4 weeks later when the deal falls through. Perhaps the original winner of the house backs out for one reason or another, or presses their luck with the seller who will then likely move to the closest back up offer. Your few extra steps following a rejection could reward you with the house after all!
We are Here for you
David and Ricki Chester - Colorado Real Estate Agents