From Realtor.com -- Lexie Holbert on 15th October 2020
Trying to buy a home in today’s market is tough. COVID has motivated a lot of people to look for a home, but also deterred a lot of people from listing their home so the options are limited. Even though I look at housing trend data every day as part of my job at realtor.com and my husband and I just bought our second home, every time you buy feels a little bit like your first time, especially in such a HOT market.
This time around we learned a few things that are helpful no matter how experienced you are, such as the importance of familiarizing yourself with the home buying process beforehand. We also used some of the same strategies that we used in our first home purchase such as using the realtor.com app and saving searches so we could find out in real time as homes hit the market.
One of the more challenging parts of our home search was going toe-to-toe with other buyers in a bidding war. I’m proud to say, we beat out the other buyers and are now the owners of a beautiful three-bedroom, three-bathroom home in Porter Ranch, Calif. Here are some things to consider if you find yourself in the same situation.
Tip #1: Know how much you can afford — This is extremely important for all buyers, especially first-time home buyers who have never been locked into a mortgage payment. There’s a lot of emotion that goes into buying a home, and it’s easy to let those emotions get the best of you. Use a mortgage calculator to figure out the maximum amount of house you can afford and be prepared to walk away if a home doesn’t fit in your budget.
Tip #2: Get pre-approved — Sellers want to make sure that at the end of the day, the sale is going to go through. Pre-approval letters are necessary in today’s competitive market. You can even go one step farther and have your lender prepare a pre-approval letter that is specific to the property you are bidding on. This will help show that you have the financial wherewithal to purchase the home.
Tip #3: Increase your down payment or earnest money — A higher down payment or increasing your earnest money (the deposit made when you make an offer) shows the seller that you are serious. A higher down payment can be enticing when a bidding war is pushing the selling price above the potential appraised value. Consider talking to your agent about upping your earnest money from the typical 1% to 10 or 20% of the purchase price as another way to reinforce your interest.
Tip #4: Offer a higher price — For many sellers, cash is king and they will sell to the highest bidder. However, that doesn’t mean you have to offer tens of thousands of dollars more. Often, just going up a few thousand dollars can make the difference between winning a house and losing out on it. You’ll need to keep in mind that just because you are willing to pay more, your lender may not be. Your loan cannot exceed the appraised value of the home, so you’ll have to cover anything over the appraised value by bringing additional cash to the closing.
Tip #5: Consider waiving contingencies -- This tip is not for everyone. While some buyers are willing to go to extremes and will waive financial and inspection contingencies in order to show how badly they want a house, it can come at a price or at least some sleepless nights. Contingencies give the buyer the ability to back out should financing fall through or renegotiate terms and price or walk away if the inspection turns up major issues. Waving one or more contingencies could be what it takes to get the house, but you’ll need to decide if it’s worth the risk.
Tip #5: Be prepared to move quickly -- If you think there are going to be multiple offers on a home you are bidding on, ask your agent to prepare several contracts with different purchase offers. This gives your agent the ability to act quickly. Another strategy is to include an escalation clause as an addendum to your offer that lets the seller know that you are willing to increase your offer by a set amount if another buyer matches your offer. Sellers may also favor your offer, if you agree to do the home inspection quickly. This will allow them to know where they stand with you and not lose a lot of time with other buyers should you decide not to move forward.
Tip #6: Be flexible -- Make it easy on the seller. Although some sellers may want to move as quickly as possible, others may want to stay in their home longer if they are waiting on new construction or would like their children to finish the school year. If you can, agree to a closing date that accommodates their needs or allow them to stay in the house for a few days without compensation following the closing. If they need more time, consider allowing them to rent back the house for a set period following the closing.
All that being said, sometimes, no matter how good your offer is, you are just going to be out bid. And while inventory is low, it’s important to remember that more homes that you like will come along and while it might take some time, you’ll find the home that’s right for you.
Thanks to Reator.com for this great post!