Higher Rates and ShortSupply: The State of Real Estate in 2022Thelast two years caught many of us off guard—and not just because ofthe pandemic. They also ushered in the hottest housing market
5 Ways To Write A Winning Offer In Todays Real Estate Market
Dated: May 17 2022
5Ways to Write a Winning Offer in Today’s Real Estate Market
Ournation is in the midst of a serious housing crunch. Last year, a lackof inventory and soaring prices left many would-be homebuyers feelingpinched. But now, with interest rates climbing, many of them are alsofeeling desperate to lock in a mortgage—which has only added fuelto the fire.1
Fortunately,if you’re a buyer struggling to find a home, we have some goodnews. While it’s true that higher mortgage rates can decrease yourpurchasing budget, there are additional ways to compete in a hotmarket.
Yes,a high offer price gets attention. But most sellers consider avariety of factors when evaluating an offer. With that in mind, hereare five tactics you can utilize to sweeten your proposal andoutshine your competition.
Wecan help you weigh the risks and benefits of each tactic and craft acompelling offer designed to get you your dream home—without givingaway the farm.
Thereality is, no one gets paid if a home sale falls through. That’swhy sellers (and their listing agents) favor offers with a highprobability of closing.
Sellersparticularly love all-cash offers because there’s no chance offinancing issues cropping up at the last moment. But don’t despairif you can’t pay cash for your home. According to the NationalAssociation of Realtors, only about 1 in 4 home purchases areall-cash deals, which means the vast majority are financed with amortgage.2
Ifsellers are assured that financing will come through, buying with amortgage doesn’t have to be a big disadvantage. The most importantstep you can take as a buyer is to get preapproved before you startlooking for homes. A preapproval letter shows sellers that you areserious about buying and that you will be able to make good on youroffer.
It’salso important to consider the reputation of your lender. Whilesellers may not know or care about a lender’s reputation, theiragents often do. Some lenders are much easier to work with thanothers, especially if you are pursuing certain types of mortgageslike FHA or VA loans.3 If so, you’ll want a lender whospecializes in these types of mortgages. If you’re unsure who tochoose, we are happy to refer you to reputable lenders known fortheir ease of doing business.
Put Down aSizeable Deposit
Buyerscan show sellers that they’re serious about their offer and have“skin in the game” by putting down a large earnest money deposit.
Earnestmoney is a deposit held in escrow by a title company or the seller’sbroker or lawyer. If the purchase goes through, it isapplied to the down payment and closing costs—if the sale fallsthrough, the buyer may lose some or all of that deposit.
Whilean earnest money deposit is typically around 1-2% of the sale price,offering a higher deposit can help demonstrate to the buyer that youare serious about the property.4 However, this strategycan also be risky. We can help you determine an appropriate depositto offer based on your specific circumstances.
Ask for Few (orNo) Contingencies
Mostreal estate offers include contingencies, which are clauses thatallow one or both parties to back out of the agreement if certainconditions are not met. These contingencies appear in the purchaseagreement and must be accepted by both the buyer and seller to belegally binding.5
Financing: A financing contingency gives the buyer a windowof time in which to secure a mortgage. If they are unable to do so,they can withdraw from the purchase and the seller can move on toother buyers.
Inspection: An inspection contingency gives the buyer theopportunity to have the home professionally inspected for issueswith the structure, wiring, plumbing, etc. Typically, the seller maychoose whether or not to remediate those issues; if they do not, thebuyer may withdraw from the contract.
Appraisal: Most lenders will not offer a mortgage on a homethat costs more than it's worth. An appraisal contingency gives thebuyer an opportunity to get the home professionally assessed toensure that its value is at or above the sales price. If anappraisal comes in low, the seller may be asked to renegotiate thecontract.
Sale of a prior home: Some buyers cannot afford to purchase anew home until they sell their previous one. If the buyer is unableto sell their current home within a specified window of time, thiscontingency enables them to withdraw from the contract withoutpenalty.
Sincecontingencies reduce the likelihood that a sale will go through, theygenerally make an offer less desirable to the seller. The morecontingencies that are included, the weaker the offer becomes.Therefore, buyers in a competitive market often volunteer to waivecertain contingencies.
However,it’s very important to make this decision carefully and recognizethe risks of doing so. For example, a buyer who chooses to waive ahome inspection contingency may find out too late that the homerequires extensive renovations, and a buyer who waives the appraisalmay risk their mortgage falling through. If you back out of a homepurchase without the protection of a contingency, you could lose yourearnest money deposit.6 We can help you assess the risksand benefits involved.
4. Offer a Flexible Closing Date and/or Leaseback Option
Whenit comes to selling a house, money isn’t everything. People selltheir homes for a wide variety of reasons, and flexible terms thatwork with their personal situations can sometimes make all thedifference. For example, if a seller is in the process of planning asignificant move, they may prefer a longer closing timeline thatgives them time to find housing in their new location.
Similarly,short-term leaseback options, in which the sale is completed but theseller retains the right to rent the home for a specified period oftime, can be compelling.7 These arrangements enable theseller to use the money from the sale of their home to purchase theirnext house. A leaseback agreement also makes it possible for them toavoid moving twice when their next home is not yet ready to occupy.
Flexibleclosing dates and leaseback options can provide a powerful advantagefor first-time homebuyers. If you have a month-to-month or easilytransferable lease, for example, you may be able to offer a moreflexible timeline than a buyer who is simultaneously selling theirexisting home.
Ofcourse, the value of these terms depends on the seller’s situation.We can reach out to the listing agent to find out the seller’spreferred terms, and then collaborate with you to write a compellingoffer that works for both parties.
5. Work With a Skilled Buyer’s Agent
Inthis ultra-competitive real estate market, one of the greatestadvantages you can give yourself is to work with a skilled andtrustworthy real estate professional. We will make sure you fullyunderstand the process and help you submit an appealing offer withouttaking on too much risk.
Plus,we know how to write offers that are designed to win over both theseller and their listing agent. The truth is, listing agentsplay a huge role in helping sellers evaluate offers, and they want towork with skilled buyer’s agents who are professional,communicative, and courteous.
Onceyour offer is accepted, we’ll also handle any further negotiationsand coordinate all the paperwork and other details involved in yourhome purchase. The best part is, you’ll have a knowledgeable,licensed advocate on your side who is watching out for your bestinterests every step of the way.
Helping You Get tothe Right Offer
Inmany cases, a competitive offer doesn’t need to be all-cash,contingency-free, or significantly above asking price. But if you’reserious about buying a home in today’s market, it’s important toconsider what you can do to sweeten the deal.
Ifyou’re a buyer, we can help you compete in today’s market withoutgetting steamrolled. And if you’re a seller, we can help youevaluate offers by taking all the relevant factors into account.Contact us today to schedule a free consultation.
National Association ofRealtors-https://www.nar.realtor/newsroom/pending-home-sales-dwindle-4-1-in-february
National Association ofRealtors-https://www.nar.realtor/newsroom/existing-home-sales-fade-7-2-in-february
Home Buying Institute -http://www.homebuyinginstitute.com/mortgage/risks-of-waiving-a-contingency/
Otniel Gil has been a top agent in Treasure Island, FL real estate for over 10 years. Prior to entering the real estate business, he was in the insurance & wealth management industry and his backg....
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