Are you planning to buy a home this year? If so, it’s time to start planning and preparing! Although the home buying frenzy has calmed, inventory remains low and it’s still a competitive market. Desirable homes receive multiple offers and sell quickly. When you start looking for your dream home, you want to be able to compete with other buyers to the best of your ability. Although you may not be able to change some things about your situation, you want to strengthen your buying power anyway you can. Here are some key factors to consider in being a competitive home buyer.
Offer List Price or Above. Many buyers are hoping for a deal. That’s fine if you are looking at a house that has been sitting on the market for a long time. However, most home buyers prefer a desirable home that’s in great condition in a fantastic location. This typically means there will be competition for the home. If the home has been well taken care of and is in a great neighborhood, the seller knows its value. Work with your realtor to know if the list price is fair and how many other offers the home has. For a desirable home, you will most likely have to offer full list price (or even above) if competing with other buyers.
High Earnest Money Deposit. The earnest money deposit is your “good faith” deposit assuring the seller that you don’t plan to walk away from the deal. If your offer is accepted, you have a few days to get this into the listing broker to hold in escrow until closing (and it comes back as a credit to you). This is the money you risk losing if you walk away outside of a contingency. For example, if your financing falls through or negotiations over your inspection fall apart, you can get this deposit back. However, if you get cold feet or you see a house you like better and want to walk away, this deposit is what you will lose. A high earnest money deposit assures the seller that you are serious and plan to follow through with purchasing the house. A buyer might walk away from a small amount, but most buyers would not walk away from thousands of dollars. If you do not want to put down a high deposit, ask yourself how serious you are about purchasing the home.
Flexible Closing Date. Some sellers need an exact closing date because they are purchasing another home and need the proceeds from their current home sale. Some sellers may need a delayed closing date if they are building a home or moving out of the area. In any case, if you are able to be flexible with your closing date and work with the seller’s timeline, that can make your offer more appealing. If you have constraints for your closing date, make sure your realtor knows. He or she can check on the seller’s preferred closing date before you even go see a home. This will eliminate wasted time if the closing date does not work for you.
Conventional Financing. There are a lot of great government financing options, such as FHA, USDA, and VA. One of these programs may be right for you or may be the only option you can qualify for. Don’t let that deter you. However, if you can qualify for conventional financing, sometimes that helps you be more competitive as a buyer. Here’s why. With government financing, you may be required to do certain inspections and also the appraiser can require repairs to be made by the seller, such as fixing peeling paint, before your loan is approved. With conventional financing, the appraiser does not have to follow these strict government guidelines and generally no repairs are required.
High Down Payment. Some loan products require only a small amount for the down payment, such as 3.5% of the purchase price. However, many buyers put more down, such as 10%, 20% or more. In the financing section of the offer, the buyer’s loan to value is listed. This shows how much the buyer is putting down on their loan. A buyer with a higher down payment is considered a stronger buyer because he has money to work with. The buyer has “wiggle room” during the transaction if expenses come up on his end, if negotiations over repairs need to be made, or if the appraisal is short. A buyer with a small down payment most likely does not have financial flexibility.
Reputable Lender. When beginning the process of looking for financing, be sure to check with local, reputable lenders. These lenders know the market, use local appraisers, understand Pennsylvania taxes, and know how purchasing a home works in a title state. Online lenders and lenders from out of state can delay the closing process and make mistakes with calculations. If you are in a competing situation with other offers on the table, who you use as a lender can make or break your offer. A seller and their agent will not want to risk a buyer who is financing with an unknown lender or a lender with a poor reputation if there are other good offers.
Limited Inspections. There is a whole list of inspections you can choose from, including home and termite, water, radon, zoning, insurance, and so on. The more inspections you elect to do, the more opportunity you have to get out of the contract and the more opportunity you have to negotiate with the seller. This is good for you as the buyer, of course, but not favorable to the seller. Choose inspections that are deal breakers to you. For example, if you don’t mind testing for radon and installing a radon mitigation system after you buy the house, don’t add that to your list. Choose only inspections that you are not comfortable going without.
Offer To Pay For Repairs. Every home inspection will come up with a list of a lot of little repair items. This is normal with any existing home. They require maintenance and upkeep, and no home is perfect, not even new ones. Let the seller know you are not looking to nitpick over every little thing, but are looking for major concerns. You can do this by offering to pay for any repairs on the inspection report up to a certain amount. For example, you could include in your terms that you will pay for any repairs up to a total of $1,500. This could be especially important when you are competing with other offers and gives the seller peace of mind that you are only looking for major repair items.
Not Asking For Extra Things. Every seller has to decide what items they are leaving for the buyer. This typically includes things like the refrigerator, washer and dryer, and shed. The seller may decide they want to take any of these things and they are excluded from the sale. Some buyers want to write into the offer an item the seller is not including. If something is really important to the seller, it is best not to ask for it. If you want something that is not included in the sale, have your realtor ask their agent to find out if the seller wouldn’t mind leaving it. Do not “demand” the seller leave an item if it’s not included in the sale.
Ability To Cover Appraisal Gap. Any time you have financing to buy a home, your lender will schedule an appraiser to go out to the house and appraise the property. Your lender can only give you a loan for what the appraised value is. If the appraised value comes in for less than your contract price, you now have to negotiate with the seller to see if they will sell their house for less. This may happen if you were in a competing offer situation and offered over the list price, or if the home was overpriced in the first place. Buyer and seller may agree to “meet in the middle” where the buyer pays extra out of pocket and the seller comes down in price, or the buyer may pay for the entire gap, or the seller may agree to the appraised value. Being able to cover an appraisal gap (up to a certain amount) can make your offer more competitive than others.
No Sale & Settlement Contingency. If you need the money out of your current house to buy your next house, you could have a more difficult time competing with other offers. This means you would be writing an offer with a sale and settlement contingency. If a seller accepts your offer, you then put your house on the market within a certain amount of days. If your home doesn’t sell within an agreed period of time, the seller can terminate the contract so they don’t remain locked in with you indefinitely. As you can see, this is a big risk for the seller. If you are able to purchase your next home without this contingency, it will make you a more competitive buyer.
Willing To Do A Rent Back. Some sellers need to stay in their home for a period of time after selling their home. This could be anywhere from a few days to a month. They may need their proceeds to purchase their next home then have time to replace the carpets before moving in. Maybe they have health requirements where they need extra time to move. Whatever the reason, for some sellers having the option to rent back from the buyer can determine whether or not they accept an offer. There are risks involved for the buyer and you should discuss this with your realtor before offering a rent back.
Each home buying situation is different. If you are competing with several other buyers for your dream home, you will need to write an offer with the best terms you can give to the seller. However, if you are writing an offer and your offer is the only one, you can write terms more agreeable to you as the buyer. Maybe you have a home to sell, or have little money to work with, and know you are not the most competitive home buyer. You can still find a home with the right strategy. Everyone’s situation requires the right strategy in the home buying process. Work with your real estate professional early in the process to prepare. He or she will help you understand how to be the most competitive home buyer you can be.
Contact Lisa for your free, no obligation home buyer consultation.
By Launch Kits