At a recent open house I was asked by several rather "desperate buyers" two questions:
- "Why do all the homes I like seem to have multiple offers?"
- "Do you have any suggestions on how I can compete and win?"
It was such a busy open house I didn’t have the time to answer the questions - but promised I would take their emails and send them my thoughts and suggestions. They responded positively to what I sent - so I thought I might share the same information with a broader audience. (If after reading you still have questions please don’t hesitate to reach out)
Question 1: "Why do all the homes I like seem to have multiple offers?"
The short answer is that the market in this area is a seller's market. In a nutshell, there are more buyers than quality properties on the market. The limited inventory of A+ to B+ homes, that are priced correctly, get a tremendous amount of buyer activity and visits.
If you visit a home and really like it, you can be assured other buyers had a similar experience and are also considering an offer.
Additionally, the effort by buyers to get a home before interest rates move even higher has increased buyer interest in the limited inventory.
There is nothing you as a buyer can do about the fact that it is a seller's market. It is what it is.
That brings us to your...
Question 2: "Do you have any suggestions on how I can compete and win?"
Fortunately, this is a reality we can do something about. I have seven recommendations to share
1. BE FULLY QUALIFIED WITH A LOCAL LENDER
Get a bulletproof local lender. Ask your buyers agent for the name of their best lender. Go as far as you can with providing data to the lender so you are 100% qualified and ready to go. Make sure you have the lenders cell phone number and a commitment they will take your call on weekends or evenings as necessary. To compete, you often will want to make an offer quickly. You need a lender who is committed to getting you a lender letter for the specific property within a few hours.
Ask your lender if they could manage a quick 18-21 day settlement. A lender who can settle more quickly than the typical 30 to 45-day timeframe may give you a competitive advantage.
Make sure your lender knows that you will want them to reach out to the seller agent on your behalf immediately after your offer is presented by your buyer's agent. Make it easy on the seller agent to accomplish their due diligence. Your care in this regard will be noticed and appreciated by the seller agent and work in your favor
2. KNOW THE OFFER, PRACTICE SCENARIO
Ask your buyers agent to provide you with a “practice” offer. This will ensure that you are able to understand all the paperwork and your agent has all the correct data pre-loaded into the offer template. Review with your buyer agent different strategies for possible offer scenarios. For example, what will be our approach if the home has been on the market for more than three weeks without a price reduction? What will be our approach if we know we have limited competition or no competition on a newer listing? What will we do on a multiple offer situation? It will make the actual offer easier to prepare when the time comes. Take too long to create a strategy and/or too long reviewing the details of the offer can put you at a disadvantage. Go ahead and digitally sign this practice offer to make sure you have worked out any glitches.
3. PRESENT IN PERSON
Ask your buyers agent to ask to present your offer in person. Seller agents will typically say "no", but it will separate your offer from the others and leave the positive impression that your agent is a smart "Old School" agent. If your agent is able to present in person you will have a real advantage. Body language and the mutual understanding that develop in a face-to-face presentation are always helpful in winning. I have won every offer I have presented in person and I have heard similar experiences of success from other agents.
Work with your buyer's agent to identify at least 2 licensed home inspectors who can be contacted to expedite a home inspection on short notice. This will allow you to pre-inspect the home prior to the offer. If you can identify that the home has no major issues you might want to write an offer without a home inspection contingency. Why is this important? Sellers are always concerned that within the framework of a home inspection contingency, the buyers will come asking for major and/or minor repairs. This contingency is also a way buyers can get out of the deal. Your offer is a safer offer for the seller and this gives you an advantage. The last thing they want to do is have a home inspection negotiation blow up the deal and have to put the home back on the market.
5. ENGAGE, ENGAGE, ENGAGE (AND NO WHINING)
Ask your agent to reach out to the seller's agent to determine if there is anything special the sellers might need in an offer that could give you an advantage.
For example: a quick settlement, an extended settlement or the need for a rent back. You are seeking ways to meet the unique needs of the sellers. Your buyer's agent must be professional and proactive. Multiple professional and carefully thought out conversations with the seller agent work to your advantage - especially if there is no whining, no complaining, no nitpicky comments about the home, no begging....just total professional engagement. Sellers are sensitive about their homes. Through their agent, the sellers are determining who they can work with to get to a successful settlement. They must sense you love the home, are fully committed to the purchase and have a great team of buyer agent and lender in place, seeking to make the deal work for both sides.
6. ESCALATE PRUDENTLY
What if we need to escalate our price? Be prudent. My professional rule of thumb is not to escalate over 5% of the asking price. I encourage my buyers to escalate in increments of 1%. For example, if we have a $400,000.00 home, we would escalate no more than 5% to $420,000.00 and we would escalate in increments of $4,000.00. I might pair this strategy with going to a maximum of $420,050.00 and altering the typical split between buyer and seller of the transfer and recordation taxes from 50% buyer and 50% seller to buyer 75% and seller 25%.
If your competition exceeds your $420,050.00 by $1,000.00 (this is the typical escalation amount used by many) you will still net the sellers a little more and win the deal. Want to get your offer closer to the top of the pile? Consider an aggressive earnest money deposit. Instead of the typical 2% - 3% deposit put down 5% or 10%. If you have a down payment on your loan of 5% - 10% consider upgrading your EMD.
7. SEARCH AND FIND OFF-MARKET OPPORTUNITIES WITH NO COMPETITION
And finally, if you are focusing your home search in a very specific neighborhood consider asking your buyers agent to canvas the neighborhood to see if they can find off-market opportunities. This takes some real effort - but it is a way to find deals where there is no competition. This approach has been highly effective for buyers. It is how The Kilner Group found the home I live in today!
Bottom Line: Good people PLUS good preparation EQUALS success.
When all is said and done, you’ll put yourself in a winning position when you have a strong team behind you, and you are prepared for a variety of scenarios.
Best of luck in your home buying efforts! If you need any help in your home search, you know where to find me!