How To Get Your Offer Accepted in a Competitive Real Estate Market
If you are currently house hunting in a competitive real estate market, you may be looking for ways to outbid your competitors. If you are currently looking to buy a home in this market, you may sometimes feel defeated. That is why it is good to do your research. We are going to provide a buyer’s guide to make sure they can get the home they want.
In this article, you are going to gain inside knowledge that has helped buyers find their dream home in no time. Not everything in this article might fit your agenda. But by combining the ones that do work, you will gain that advantage over your unknown competition.
What makes for a Competitive Real Estate Market?
There are plenty of factors that go into a competitive real estate market. The biggest one is low inventory and high demand. Once you have a desirable area with few properties on the market, you begin seeing 20+ offers in days. As well as a property selling for a $50,000 asking price. Typically, good school districts with plenty of shopping areas can also drive up prices. Location is a large factor in a competitive real estate market. No matter what is driving prices, being prepared will make the difference.
High Amount of Earnest Money “EMD”
Earnest money, or a good faith deposit, is the amount of money you put down with the title company or one of the broker’s offices in the transaction. It is different from the down payment you make with the lender (which is usually 3% to 20%, depending on your type of loan). Think of earnest money as a good-faith deposit you are leaving with the title company or broker’s office in the transaction.
The amount will show the seller how serious you are. It will essentially go towards your closing costs when you get to settlement. It is also handled in the event of any dispute between buyer and seller. The standard amount is usually best to go to at least 5% of the purchase price. Though this amount can easily be adjusted based on what you, as a buyer, are comfortable with. A higher amount can ultimately show the seller how serious and strong a buyer you are.
Appraisal Gap Insurance Helps in a Competitive Real Estate Market
This one is starting to become more popular and powerful in a competitive real estate market. It is gap insurance is when a buyer is willing to cover the cost between the offer price and the appraisal. For instance:
- The buyer offers $450,000, but then the appraisal comes back at $425,000. In this case, the lender may only approve the loan up to $425,000.
In this case, someone will have to cover the difference. Either the seller has to come down on price, or the buyer has to come up. Which could ultimately kill the deal. But if you make it clear as a buyer you are willing to cover a certain amount, say up to $25,000, in gap coverage, then it can make the seller feel more comfortable.
Though you have to be financially able to cover this, along with your down payment and closing costs. Because that additional amount will come out of your pocket separately at closing.
Escalation clause on offer
Another common way to get your offer accepted in a competitive real estate market is by using an escalation clause. This is when you offer a certain amount with an escalation amount up to a certain number. See below for details of an offer with an escalation clause:
- A buyer’s agreement of sale is an offer of $400,000 with an escalation clause of a $2,000 increase up to $425,000. If an offer comes in at $420,000, your offer would increase to $422,000 but not exceed $425,000.
It is always good to set a limit on your escalation clause. Because if not, it could force you to pay more. These clauses are great because you, as a buyer, could get a property for less than your actual budget. At the same time, it allows you to comfortably bid up your opponents in a competitive real estate market.
Finding the Right Closing Date
Most sellers are going to have a preferred closing date. If it’s fast or slow, it depends on their situation. Sometimes a seller could need a certain amount of time to find a new place. Maybe they need a 2- or 3-month closing. They are not going to want to accept a 30-day closing.
If you are dealing with an empty home where the seller has already moved out. They may be looking for as fast as possible. Working with your lender to find out how fast you can close can be crucial in a situation such as this. That is why your agent needs to find out the seller’s time frame for when it would be an ideal close. That way, they can tailor your closing date to fit the seller’s needs and make it more appealing.
Being the First to Submit an Offer in a Competitive Real Estate Market
You and your agent should be on the same page with how fast you are looking at properties as well as submitting offers. Typically, you want to be looking at properties the first day they hit the market. Your agent should be able and available to show the properties at any hour of the day. If you happen to be one of the first few buyers to walk through the home.
You can ultimately set an offer deadline. In each agreement of sale, there is a section that allows you to put a deadline of a day or two. If you can make an appealing above-asking offer, that will most likely make the seller more inclined to go with your offer. As well as not allowing other buyers with stronger offers to have the time to submit.
Consider Paying the Seller’s Closing Costs and Title Fees.
It is very common with cash sales. The buyer tends to cover all closing costs and transfer taxes associated with buying a property. But when you find yourself in a competitive market, you can offer to cover the seller’s transfer tax and closing costs.
In Philadelphia, it’s roughly 4% that gets split between buyer and seller. Closing costs are much less, around a couple of hundred to a thousand dollars, for a seller. But by covering these costs, it could help you seem more appealing in a competitive real estate market.
Waiving Inspection Contingencies in a Competitive Real Estate Market
The biggest fear for a seller is what will come back on an inspection report. Even completely remodeled homes tend to have issues. When you offer to waive inspections, it gives a seller more peace of mind when going with your offer. However, it can be a very risky thing to do as a buyer. Especially if you are already putting out good money. Additionally, there’s ways to help put your mind more at ease with contract contingencies.
- Have a general contractor walk through with you if you have a serious interest in making an offer. Sometimes you can pay a small amount to a general contractor to come out and do a walkthrough of the property to point out any major concerns.
- You can have an inspector walk through a home you have a serious interest in as well. Same situation: pay them for their time and have them come through the property with you. They are experienced enough to walk through and point out any major issues.
- You can have your agent set a longer showing time. Sometimes even 1 hour long to allow you time to walk through the home with a contractor or inspector. Hopefully, they can go with you and help put your mind at ease to make an offer not contingent on inspections.
Larger Down Payments for a Competitive Real Estate Market
When it comes time to make an offer, you can put up more than 20%. Your agent can even let the listing agent know or have your lender reach out. Stating you are willing to put up more than 20%. It’s a small but sure way the seller will know how serious and strong a buyer you are. If you have the extra cash, it could be worth making that extra down payment.
Lender Praise
Your lender and real estate agent should work as a team when it comes time to submit an offer. Usually, your lender is the one that your agent uses to make an offer. Your lender can even reach out to the listing agent and praise you as a buyer. They can tell the agent how easily you should be able to be approved to buy this home. Every party matters in the transaction. A lender knows your finances and buying power more than anyone. Having them reach out could give an extra boost to your offer in a competitive real estate market.
Selecting the Right Agent for a Competitive Real Estate Market
When it comes to buying in a competitive market. Choosing the right realtor can make all the difference. Here is a small checklist on what the right agent should look like.
- Having a great understanding of the real estate market, you are looking to buy. They will be able to help determine how much a property should sell over asking.
- Being very responsive is a huge indicator that you are using the right real estate agent. If they show a quick response. Then they are most likely on the ball when it comes to searching for homes that hit the market.
- Knowing what to attach to your offer is a huge sign that they know what they are doing. As we listed in this article, there are different ways to beat out other offers. They should be utilizing at least a few listed.
- Finally, an agent who pays close attention to detail can be a huge difference maker. If your agent is on the ball with completing contracts fully and knows what type of home you are looking for. Then you have the advantage when it comes to winning the bid on a property.
Staying Ahead in a Competitive Real Estate Market
In a competitive real estate market, it may seem almost impossible to get an offer accepted. However, if you have a good agent and a good lender, it’s certainly possible. Additionally, use different tactics in your offer process. Therefore, you could stay ahead of your competition. Just because a buyer might be able to offer more money. Does not always mean they will beat out a lower offer. Properly using real estate terms and conditions, along with knowing the seller’s needs, will make all the difference in finding that dream home.