At this point, you’ve been adequately warned that your competition out there – other buyers and investors looking to purchase the same home you want – is about to toughen up as interest rates cool down. This is because so many homebuyers were priced out of the market as interest rates shot up to 8%. Now as rates cool down to the lower 6’s that means homeownership is back on folks’ radar. We might see a slight uptick in listings as there were sellers who also felt the pinch of higher rates and stayed in an unsuitable home longer than they wanted. Those motivated by improved interest rates - motivated to sell their home - unfortunately won’t be enough to meet the demand of buyers. We have an inventory problem.
I’ll stop beating that dead horse.
You already know. Instead, let’s focus on how we help you be a more competitive homebuyer. How we can make your offer stand out.
But first, a quick disclaimer, based on personal experience.
There will still be opportunities to negotiate. Homes that are overpriced. Sellers that are motivated. Please do not let the experience of losing one home make you overpay on the next. When we were in the market for a second home at the lake, we fell in love with a house on the water. It had been on the market almost a month but naturally, the weekend we found it – so did another family. After a weekend of tense negotiations, we lost. A couple of weeks later when another home came on the market, I made a full price offer sight unseen. I didn’t want to suffer the same heartbreak again.
All’s well that ends well and I love our house. (And I never drive past the old one and stare with wide eyes.) Here’s the thing though. I know we overpaid for that house. And I’m in the industry! Real estate becomes personal very fast. So allow your realtor and lender to get the scoop on each home and run the numbers so you can avoid my mistake. We are here to help you get the best deal.
My best tips to stand out.
You must be pre-underwritten from a credible lender. Listing agents are going to move the offers without a pre-approval letter to the bottom of the pile. On top of those will be the offers that have a basic preapproval with self-disclosed, unverified information from Rocket Mortgage. Cash offers are typically presented first but those are often from investors looking to get a discount. The sellers might not be game for that and may not want to sell their beloved home to a faceless company. The offers that stand out are the ones that show the buyer has already been fully pre-underwritten, their loan is ready to go, they were just looking for the right property to make a home.
Next, find out what’s important to the seller.
Do they need to close fast because they’re in contract on their new home? Lucky for them you’ve been pre-underwritten and can close in 14 days! Or they need time to find a new home, you can offer a longer escrow or even throw in a free rent back. Little known fact: You often have a skipped month after closing before your mortgage payments begin. For example, if you close on a home this month – July – your first mortgage payment would be due September 1.
Does the seller need to net a certain amount of proceeds? If your agent is strategic they can find this out and then you can compare options of a price reduction versus a seller credit to see what will get you the best bang for the buck.
Last but not least, and mainly for the most competitive of options: waive your appraisal or provide terms to cover an appraisal gap.
Most buyers think the only lever they have to pull is an increase in their offer price. The problem with bidding wars is that the home may not appraise for that price. If the listing agent has experience, they will bring up this concern to their client – the seller. If the listing agent is inexperienced, I say go in above list price with a shiny number for the seller and then renegotiate when your appraisal comes in low, and the other buyers are gone. (I just sent a shiver down some realtors’ spines.)
If you want the seller to feel safest with your offer, then you can waive your appraisal. Unless you receive an appraisal waiver from your lender (which is done using an automated underwriting system), you will still need to order an appraisal. What you are waiving is your right to renegotiate if it comes in low. You’ll have to pay that difference out of pocket. Say you don’t want to be on the hook for an unlimited amount of difference funds…set a limit. Your realtor can draft the offer stating you will cover an appraisal gap up to $10k or whatever number you want to use.
Let me know if you want to hear more of my negotiating strategies, let’s win in this tricky market together!
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