Viewing homes can be an exciting process, especially if it’s your first home. You get to walk through each room of an open house and visualize how you would use the space and make it your own. All the while, enjoying the tour by the listing agent and (maybe) complimentary wine and hors d’oeuvres. Eventually, though, you’ll find the one that’s perfect. When that happens, you’ll need to buckle down and make an offer that will scoop it up before someone else does. In fast markets where demand is high and inventory is low, sellers have a clear advantage. Not only will buyers have to make an offer that will get their attention, but they’ll also be competing with other buyers.
If you’re new to real estate, then you might think the only way to beat competing offers is to offer more money. But that need not be the case. A lot more goes into an offer then just the price. If you want yours accepted, then you’ll need a good strategy. Here are the key things to follow when making an offer on a home in a hot market.
Make a large earnest money deposit
Your earnest money deposit is the amount you offer at the start of a deal. It’s made as a show of good faith and to show that you’re serious about the deal. It will be kept in an escrow account by a third party and later go towards the down payment and closing costs and the end of the deal. If for whatever reason you decide to cancel the deal, or it falls through on its own, the seller gets to keep it. If you want your deal to stand out, then make a larger deposit than is usual in your area. This shows that you’re serious about buying or else you wouldn’t risk losing so much.
Ascertain the seller’s motivations
If you know the seller’s personal motivations for selling, you’ll have a huge advantage in crafting the perfect offer. Knowing their motivations is just as important as knowing the local market. For instance, if they’re relocating because of a new job, then a fast closing will be important to them. If it’s a retired couple who are looking to downsize then money will be their motivation as they can afford to wait. Work with your buyer’s agent to figure out the seller’s motivations. Once you know that you’ll know exactly what they want in an offer.
Get preapproved for your mortgage
This is something you should do before you even start your search. While mortgage preapproval is not the same as prequalification, it’s an important initial step that lays the groundwork for getting the loan. Provide all your financial information and consent to a credit check with your chosen lender and they’ll provide a preapproval letter. This will state that you’re approved up to a certain dollar amount. Most sellers will not take an offer seriously if it doesn’t come with a preapproval letter.
Conduct a comparative market analysis
Smart sellers will conduct a comparative market analysis (CMC) when deciding on their asking price. This devises the market value of a home based on the sales of comparable properties in the surrounding area or a similar neighborhood. Have your buyer’s agent conduct a CMC before making an offer on a home. Not only will this give you a starting point for making an offer, but it will also alert you to overpriced properties.
Make contingencies palatable
Sellers don’t like contingencies and if they have a lot of interest then nothing can kill your offer faster than creating a lot of them. But not making contingencies is a risky move for buyers that could lead to you losing your deposit or ending up with a lemon. However, you can offset the dangers of forgoing contingencies with a few simple steps. If you get preapproved for your mortgage and make a large down payment, then dropping the financing contingency doesn’t look so bad. If you have the funds for it, you can drop the appraisal contingency and balance the risk by promising to pay the difference if it comes back lower than expected. Don’t forgo the inspection contingency but tell the sellers that you will cover the costs of any repairs. If the price tag on any repairs becomes too much, then you can still back out.