Buying a home is one of the most challenging adventures in history for homebuyers at the moment. All across the country, home inventory levels have dropped to the lowest level on record. Buyers are fighting over houses. It is not uncommon in some price points to be up against over one hundred other buyers looking at homes.
When it comes time to put in your bid, you could be one of fifty other offers the seller is considering. Many buyers end up offering on numerous houses before they finally become the winner. The key to buying a home in a seller’s market is knowing what you are up against.
Going into the process with your blinders on will lead to failure. It will help if you become educated on the local real estate market and its nuances. Contingent real estate happens within a couple of days in most locations. If you are not on the phone with your real estate agent within moments of a house you like hitting the market; you’re already behind the eight-ball.
Homes sell fast. So what can a buyer do to increase their chances of becoming a homeowner?
Let’s look at what you should know about buying a house in a hot seller’s real estate market. Using some or all of these strategies should increase your chances of success.
Offer Above the Asking Price
In most real estate markets across the United States, if you don’t make your offer higher than the list price, the seller’s agent will be laughing when they receive your submission. It is doubtful there won’t be other offers that have gone over the asking. There will probably be some bidders who have gone way over.
Use your buyer’s agent as a guide. They should know the local real estate market well enough to provide solid guidance. Negotiating is one of the most vital roles of a buyer’s agent.
They will probably be able to tell you stories about some of their clients who have lost homes and how much over the asking price they bid. Don’t be shocked by how far over they went and still lost. The reality of purchasing a home in the current seller’s market is mind-boggling.
Remove as Many Contingencies as You Can
When buying a house, it is normal to have certain contingencies in a real estate contract most of the time. For example, most buyers need a mortgage contingency to procure financing. It is not like people have hundreds of thousands of dollars floating around in cash. The tomato bush outside isn’t usually filled with money.
Most buyers also want to know a home’s condition. Hiring a professional home inspector to look over a property for issues that could incur hidden costs is expected. Believe it or not, mortgage contingency and home inspection clauses are being removed from many real estate offers.
When you are bidding against numerous other buyers, there are certain things you can do to make your offer stand out. Removing common contingencies is one of them.
Finding enough cash to buy a house will be impossible for most. But you could gamble. If there is near 100 percent certainty you’ll be able to get financing, consider removing your financing contingency.
Doing so makes you look more like a cash buyer. If you feel the home is in excellent shape and there are no substantial problems, waiving the home inspection might not be the end of the world.
Only you can decide your comfort level, but these things might be necessary depending on the local market.
Waive the Appraisal Clause
Another standard procedure in most real estate transactions when procuring a mortgage is to have an appraisal. The lender wants to know the fair market value to ensure their money is protected. A lender doesn’t want to provide financing on a property that isn’t worth the sale price. Lenders verify the value by hiring a licensed appraiser who will visit the home and analyze the value.
When a seller has received an offer way over the asking price, there is a good chance the home may not appraise. A seller doesn’t want to accept a buyer only to have this happen. To avoid this situation, consider waiving the appraisal.
You’re showing a seller just how badly you want their property by waiving the appraisal. However, you need to know that you’ll be on the hook for any shortfall in the assessment.
The lender will ask you to increase your deposit to make up the difference between the appraised value and purchase price. It’s known as an appraisal gap. More and more buyers are adding this language to be the winning bidder on a home.
Make Your Earnest Money Deposit Higher Than Normal
When buying a home it is customary to put down earnest money funds as security. Some people call it a good faith deposit. The money is held in an escrow account and ensures a buyer follows the responsibilities outlined in the real estate contract.
When a home buyer doesn’t keep up their end of the bargain, they can lose their earnest money. In most real estate markets, the earnest money deposit amounts to one to five percent of the purchase price. If you want to get the seller’s attention, put up more than what is customary for the local market.
Having more skin in the game will increase the seller’s comfort level. These funds become theirs when the buyer defaults.
Offer Occupancy Past the Closing Date
Timing in real estate is often a critical part of decision-making. When you’re selling a home in a low inventory market, the most significant challenge is finding another place to live. Some sellers know it’s a great time to sell and will do so before finding another home.
To make your offer even more attractive, offer to let them stay in the home after the closing date. You can offer a use and occupancy agreement for an agreed-upon time period. Doing so could take a lot of stress off the seller.
If you are paying cash for the home, you’ll need to ensure you have a homeowner’s insurance policy for the structure and all your belongings. Not having insurance while someone else occupies your home could become a financial disaster and remove your ability to make a homeowners insurance claim in the event of damages.
Avoid Asking for Personal Property
You are bound to see something you love while touring homes in some circumstances. If you happen to fall in love with something in the home you want to buy, don’t ask for it. Keep this request out of the contract. You don’t want to tie asking for personal property with your offer to purchase. It could sour the seller’s taste for your submission.
Instead, if you have the winning offer, ask for it later. Seller’s often want to declutter before moving to their next home. The perfect time to ask for something is after you have locked up the house, not before.
Buying in a Seller’s Market Is Challenging
There is no doubt that buying a house right now is not easy. There are multiple factors that go into buying a house. Avoiding mistakes is critical. You might find yourself making offers on numerous occasions before finally landing your dream home. Keep a stiff upper lip and move forward. Using these tips will increase your chances of success. Best of luck!
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