Making an Offer Is More Complex Than It Once Was
Bidding wars are prevalent in the current property market and can get intense. How can you ensure that your offer is the one that the seller cannot refuse?
These seven techniques will improve your chances of outcompeting the opposition without overpaying.
What is the most vital tip? Unless you are making a cash offer, your first step should be to be pre-approved for a mortgage loan. An offer supported by a pre-approval letter is far more attractive to sellers than one that is not.
7 Pointers for Making the Most Fantastic Offer
You may discover many bids on the same listing when searching for a new residence. This is especially true when the market favors sellers.
While you want your offer to be accepted, you should avoid increasing your offers to the point where you can no longer afford the house.
To obtain the home, you desire without overpaying, adhere to these seven rules.
Many of your competitors will skip some of these processes, giving you an advantage in the marketplace.
Get Pre-approved for a Mortgage
The purchase process does not begin with a search for real estate listings or a call to a real estate agent.
Instead, it should begin with a lender-issued mortgage pre-approval.
Pre-approval performs two essential tasks:
- Checks your price range to determine which properties you can afford.
- Demonstrates to house sellers that you are committed to the purchase and won’t back out.
Sellers offer precedence to pre-approved purchasers. Pre-approval assures the seller that you will have the funds at closing.
Obtain a pre-approval letter, not merely a pre-qualification letter, from one or more lenders before hitting the streets.
A pre-approval letter verifies that you will be eligible to borrow $X based on the lender’s review of your credit score, assets, and income.
With pre-qualification, the lender estimates the amount of money you could borrow. It does not commit to providing you with a loan.
Even though pre-approval takes a little longer and needs an application, it is a worthy investment, particularly in a competitive market.
In addition, when the seller accepts your offer, and you sign the purchase agreement, your pre-approval offers you a head start on the mortgage application.
Allow for Some “Wiggle Room” in Your Offer Price
Even if a bank is ready to lend you $250,000, you should offer at most $250,000 for a home. In actuality, doing so may harm your credibility.
When buyers bid their entire pre-approval amount, seasoned sellers and real estate brokers become anxious.
Why is this a poor decision?
- For one thing, maximizing your pre-approval might decrease your “negotiating room”. The vendor knows you have already reached your mortgage lender’s spending limits.
- And, if interest rates increase, you may no longer qualify for that loan amount and will be forced to withdraw from the agreement.
- Rates constantly fluctuate until you lock in a rate, which occurs when you have a purchase agreement.
Realize that just because you can afford the entire amount of your pre-approved loan does not imply you should borrow that much.
Your lender will not consider your (expensive) lengthy commute, costly hobbies, or financial aspirations. You may choose to borrow less money to breathe better.
Also, be sure to prepare ahead for closing expenses, which will be required on the closing day of your house. Typical closing fees are between 3 and 5 percent of the loan amount.
Conduct Market and Seller Research
Your buyer’s agent can perform a comparative market study to assist you in determining the fair market value of the houses you are considering.
This market data, which realtors may refer to the property as “comps,” is a crucial piece of the puzzle when you prepare your initial offer.
However, there is more to market research than determining a reasonable offer price.
If you or your agent check public records and real estate listings, you may discover useful “intelligence” about the seller’s objectives. This might help you develop a competitive offer at a lower cost.
Also, examine the seller’s social media accounts for hints. You may discover that you have interests or acquaintances which might be advantageous during negotiations. Just don’t cross the line while attempting to be intimate.
For instance, you may discover that the seller is relocating for a new job and need a rapid closing – faster than other purchasers are prepared to wait.
Or, you may discover that the seller still needs to locate a new residence and wants to delay the closing. With this knowledge, you may create a more attractive offer than your competitors at the same selling price (or less).
Make a Reasonable Proposal
Submitting a lowball offer that needs to be substantiated by sales data typically backfires in a sellers’ market.
Purchasing a home is not comparable to bargaining at a flea market. Therefore, you should not offer $150,000 for a home valued at $250,000 and anticipate a counteroffer.
Too frequently, the seller will be insulted by your “starting bid” and refuse to respond to your further calls.
If you are still determining your offer price, consider the house sale from the seller’s perspective. As the seller, you may have spent at least a decade updating and maintaining the property’s structural integrity.
A flaw on the baseboard or a slight spill on the carpet may prompt the seller to recall a tale.
This type of emotional attachment cannot be quantified, and it should not add a dime to the property’s purchasing price. Despite this, making a lowball offer disregards the human element of the deal, and it might hinder talks.
This means you can only offer the seller’s asking price; it just means you’ll have better success if you include market statistics in your offer letter.
Be Lenient With Contingencies
Most house purchase proposals contain a few typical “contingencies” – conditions that must be met for the transaction to close.
For instance, it is prudent to condition your offer on a house inspection and your ability to obtain financing within a defined time frame.
The deal should also include an appraisal contingency: if the property’s appraised value does not support the loan amount, the lender cannot proceed with the loan.
However, contingencies are typically impediments to effective closings. Therefore, keep them to a minimum.
In red-hot home markets, you should forego repairs and credits that are non-essential. There’s no harm in asking, but be prepared to waive such contingencies to close the purchase.
However, under no circumstances should you waive the house inspection contingency. If you do so and uncover a big flaw, you risk losing your earnest money deposit if you withdraw from the transaction.
Use Your Own Agent Instead of the Seller’s
When you locate the ideal home, move quickly. Delays may destroy a transaction. Likewise, do not engage the seller’s agent (sometimes known as the “listing agent”) to speed up the process.
Hire a buyer’s agent to protect your interests and assist you bargain before you begin property searching.
The seller’s agent must advocate for the seller’s best interests. This means negotiating the best price and terms for the vendor rather than for yourself.
Using the seller’s agent creates a “dual agency” situation, leaving your interests unprotected – unless you defend them yourself. And if that is the case, why hire an agent?
Ultimately, the agents’ commissions will likely be included in the purchase price. When there is no buyer’s agent, the seller’s agent receives the whole commission. This is a substantial sum to pay someone else’s agency.
Keep Your Emotions Out of It
Occasionally, purchasers are so dazzled by certain qualities, like gleaming hardwood floors or swimming pools, that they miss glaring flaws.
This occurs to both seasoned and first-time homebuyers.
This is an additional incentive to engage an agent. You need a third-party counsel if you fall in love with a property and attempt to exceed your budget.
No matter how much you adore a home or how strong your offer is, you will only sometimes win. Instead of overpaying, be willing to walk away
There will be more available properties that fit your needs and desires. There is a chance that your genuine “dream home” still exists.