Buying a home is likely to be the most significant financial investment you’ll ever make, but the real estate market isn’t exactly buyer-friendly at the moment.
For several reasons, home prices keep rising, and experts don’t think that there’s a real estate “bubble” that’s likely to pop anytime soon. They expect, at best, a “modest” correction in prices, but that may not alleviate the strain for buyers.
A lot of homeowners are remaining in place, simply because their current mortgage is cheaper than anything they could get elsewhere. Even homeowners who might ordinarily be downsizing or looking for a senior community or an apartment are choosing to stay put, instead. That single factor has significantly reduced the number of homes available for sale, putting pressure on those potential home buyers. A strong offer on a home can be the difference between securing your dream home or missing out and having to start your search all over again.
How do you craft a compelling offer on a home? Here are some tips:
1. Research Your Market
Before making an offer, it is essential to have a clear understanding of the current real estate market conditions in your desired area. You can start this process on your own by looking at market trends in the news. If there’s a “buyer’s market” in an area you like, you have more negotiating power – but a “seller’s market” means there will be more competition.
You won’t have a truly accurate assessment until you hunker down with a professional agent who can do a comparative market analysis (CMA). This involves looking at recently sold homes in the area that are similar to the size, conditions and features of the home you’re interested in buying. That can help you make an informed decision about how much to offer, so that you remain competitive without overpaying.
2. Get Pre-Approved for a Loan
Your offer is automatically stronger if you can prove to the seller that you are capable of getting the financing you need to buy their property. Unless you have the money to make a cash offer (and few do), you need to obtain a mortgage pre-approval from a reputable lender.
A pre-approval, which is distinctly different than “pre-qualification,” represents a tentative commitment on the lender’s part to finance the buyer’s purchase up to a certain dollar amount. Pre-approval shows sellers that you will be able to follow through on your offer. If you are fortunate enough to be able to make a cash offer, however, be ready to provide the seller with proof that the funds are indeed available. That can alleviate any concerns on their end about your financial trustworthiness.
3. Get an Experienced Real Estate Agent
Having an experienced real estate agent on your side can make a significant difference when it comes to submitting a winning offer. A seasoned agent knows the local market and can provide valuable insights into what buyers expect, what will attract their attention in a positive way and what could make them hesitate to accept your bid.
An agent can help you determine a competitive offer price and the terms that appeal to the seller. They also can negotiate effectively on your behalf, leveraging their experience to get you the best possible deal.
4. Balance Price Against Convenience
Setting the right offer price is a critical component of your offer. If the market is already competitive and the home is reasonably priced, you may want to offer the asking price or slightly higher – as long as that’s in your budget.
Just remember that price is not the only thing that sellers consider when they evaluate offers. There’s more information below that can help you “sweeten the pot” a little when you make your bid.
5. Minimize Contingencies
From inspections to financing, contingencies are usually part of every purchase offer. But just because they’re expected doesn’t mean that contingencies aren’t a source of annoyance for sellers. The more you limit the contingencies tied to your offer, the easier it is for the seller.
For example, you can make it clear that you won’t ask for minor repairs for issues that come up in the inspection, as that can alleviate some stress for the seller. Another contingency that sellers dislike is the “home sale” contingency. This one says you are only obligated to go through with the purchase if you find a buyer for your current home. If you have the ability to finance the new home anyhow, it may be wisest to skip this particular clause.
6. Offer Significant Earnest Money
Your “earnest money” is cash on the table to show your offer is sincere and made in good faith. As long as you go through with the deal, that money will be applied to your purchase – but you could lose it if you back out for some unapproved reason.
Plunking down a hefty earnest money deposit shows that you’re serious and not likely to change your mind on a whim.
7. Be Conscious of the Seller’s Needs
Flexibility with the closing date can be an attractive feature of your offer, particularly if the seller has specific needs when it comes to the timing of their sale or move.
Ask your agent to communicate with the seller or their agent and express your willingness to work with their preferred closing date (as much as possible). You may also want to include a “rent-back” agreement in your contract that will allow the seller to remain in the home after closing for a month or two while they finish packing and moving. That can be particularly helpful to sellers who are downsizing, moving out of state or have mobility issues.
8. Include an Escalation Clause
If you’re worried about being outbid by another would-be buyer, an escalation clause can help your offer remain competitive without drastically overpaying.
An escalation clause automatically increases your offer by a certain amount above any competing offers – up to whatever maximum price you can afford or are willing to pay. When the market is hot, this can help you stay “in the game” even when you’re unsure how much to bid.
Making a strong offer on a home requires preparation, strategy and – sometimes – a little bit of creativity. By getting pre-approved, understanding the market, making a competitive offer, and being flexible with the terms of the agreement, you can position yourself as an attractive buyer. Remember, working with a knowledgeable real estate agent can significantly enhance your chances of success – so happy house hunting!
