How to Win a Multiple Offer Situation in a Hot Market
You have finally found the house you want to make an offer on. However, there is a catch: showings don’t begin until Thursday and offers will be presented on Monday at noon after the Open House on Sunday. You can assume that there will be multiple offers presented, but you know you must have this house. With the spring market, just around the corner, it’s important for buyers to be informed on the fact that bidding wars may ensue. Here’s how to be prepared…
Have your Pre-Approval letter ready: This is where having a great lender will come into play. I would have your pre-approval letter in hand and ready to go. Don’t wait until the day you are submitting your offer to reach out to your lender. Your agent can take care of this for you but it is important that you have met with your lender and discussed what you are approved for and what the numbers will be on the home you want to submit an offer on. If your lender allows, you may want to ask for their cell phone number so you can get a hold of them within a moments notice. Another idea is to have them send you several versions of your preapproval letter for various amounts. There’s also differences that you can discuss with your lender about being preapproved or prequalified. Some loan officers can even run your loan application through underwriting prior to identifying the subject property.
Sell before you buy: Showing a seller that you’re able to purchase the home without a contingency on the sale of your current home is imperative, especially in a hot market. Chances are if a seller sees that you must sell your current home in order for the transaction to successfully close, they will pass on the risk. Even if your current home is currently under contract and about to close, a seller may choose to go with the offer of someone else.
Offer a Higher Earnest Money Deposit: Putting in a high earnest money deposit shows the seller how serious you are about your offer. The greater the amount, the more serious you seem. It also makes it seem like you are highly “qualified,” in the eyes of the seller. Since your earnest money deposit is protected by certain contingencies, this will not affect you in any way other than that money will be deposited into escrow with an acceptable contract.
The less contingencies, the better: Obviously, you should always be contingent upon the home inspection, appraisal, and financing. This protects you as a buyer to get out of the contract should the home have too many defects for your liking, not appraise for the contract price, and/or ensure that you are able to get the financing that you need. However, the cleaner your contract is when it comes to contingencies the more likely they will be to accept over another contract that may have a huge list. In a highly competitive market, some of these standard contingencies may be electively waived.
Cash is king: Everyone is aware that an all cash offer may outweigh a financed offer. These usually can close sooner, and there is no risk in the loan falling through. If you have the cash, and it’s the home of your dreams, it may be worth it to offer all cash. A letter with verification of funds delivered at the time of the offer will also help solidify your qualifications. Be sure to either have a letter on your bank’s letterhead and/or the latest account balance prior to making your purchase offer.
Highest and best: When the market is hot it is always best to offer your highest and best. In multiple offer situations, there can only be one winner. Think about if you really NEED closing costs. If so, then making a full price offer or going over by the amount you need in closing costs will seem much more appealing to the Seller than offering less than asking and needing closing costs as well. Most buyers in multiple offer situations believe that if the seller wants to work with them, that they’ll respond with a counter offer. However, in most cases, the seller simply picks the best one out of the pile, signs it the way it is and calls it a day.
When there is a low supply and high demand, you’ll need to change up your buying strategy. Hopefully, the tips above will help you snatch up the home you’ve been searching for. Make sure that you are prepared to make a decision quickly, have your preapproval letter ready (or verification of funds for cash offers), and/or have your previous home sold and closed. When writing the contract attempt to make it as clean as possible with the least amount of contingencies and put your best foot forward right out the gate. Indicators of a large down payment and/or a large earnest money deposit will also set your offer apart from others. With the advice of the professionals and these few tips, you’re ready to jump into a HOT market.
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