Too many buyers for too few homes. That has been the refrain across the Puget Sound housing landscape for most of a decade – and there are few signs of that changing in the near future.
What to do when you no longer wish to throw money away in rent or simply need your own place as the family grows? You be smart – home-shopping smart!
We are witnessing an extremely competitive marketplace, where buyers are upping their game (can you say Love Letters?). Sellers are receiving multiple offers after the first open house weekend. After weighing those bids, sellers reach mutual acceptance a day or so later. This is what listing agents are experiencing with their clients, particularly for detached single-family homes that are move-in ready.
Speaking of ready, buyers must be more prepared than ever as they scan Puget Sound listings. Here are six suggestions to help you get that dream home in a competitive market:
Be Mortgage Ready: If planning to seek a mortgage, ensure you are fully underwritten (aka “certified mortgage ready”). This is a level of financial backing that puts you in better position when writing an offer. All lenders check your credit, income and assets but many won’t go the extra mile to fully review your CIA until mutual acceptance is reached. Why? Because it costs money and takes more time for an underwriter to research an applicant’s complete financial picture. A letter from your lender stating you are fully underwritten is essentially approval of a mortgage and a shortened time to closing – an important leg up on other buyers who may only be fully approved or fully qualified.
Be Contingency Clean: Contingencies are a buyer’s best friend. They allow you to back out of an offer should the seller fail to fulfill his/her obligations on a certain matter in the agreement or, in certain circumstances, when a buyer is unhappy about an aspect of the house or neighborhood and wishes to withdraw (or for other reasons) as long as buyers adhere to the contract. In a competitive market where the fewest number of obstacles to a closing is key, many buyers make offers without contingencies. This could mean the buyer is waiving a home inspection – which, as your broker, I would almost never advise because of the risk of finding a material defect after moving in and having little or no recourse. It could mean waiving the financing contingency and paying for the home in cash. A “clean offer” is a seller’s dream and buyers often raise their stakes by giving up legal protections to get a home. Always seek the advice of a real estate attorney before taking any of these extraordinary steps.
Be Seller Aware: This is a message to both the buyer and his/her real estate representative. Brokers need to take the time to speak with listing agents about the sellers’ situation. What are the circumstances of the move? What is their timeline? What are their special memories of living in the home? In other words, know as much as possible about the sellers so you can make an informed offer that will speak to them – on an emotional and financial level. It can make a difference for sellers when their situation is conveyed and needs considered as part of the offer.
Be Earnest Money Strong: As I have written before, cash is king in real estate and a sizeable earnest money deposit attached to the offer will get the attention of a seller struggling to decide between multiple bids. If you can afford a larger sum, say 5%-10% of the offer price, a buyer is clearly signaling his/her extreme desire to get the home. The downside to this strategy is that buyers can lose up to 5% of that money should they fail to fulfill their obligations and the offer is cancelled. Possible scenarios of that happening could include buyers missing deadlines or failing to get the necessary funding to complete the sale.
Be Buyer Savvy: It’s not uncommon to see bidding wars for a beautiful home in a nice neighborhood. That means a serious overture should include an escalation clause to stay in the running when/if the initial offer falls short. (This assumes that a buyer is making a strong net-price offer in the first place.) If your initial bid on a home of, say, $700,000 fails to beat other buyers in the running, your escalation clause that promises an additional $20,000 could kick in (possibly in increments of $5,000) and may put you at the top of all offers. That’s great news assuming you can truly afford that extra amount. Factor in escalation clauses when speaking with your lender, broker, financial planner and/or real estate attorney. Keep in mind, the lender would have informed you in advance – and delivered that fully underwritten letter – with the maximum amount approved on the mortgage. That’s the ceiling. Therefore, look for homes in a competitive market at about 3%-5% less than that ceiling to remain in a bidding war should it arise.
Be Strong at Closing: In addition to producing a significant earnest money deposit, buyers in a competitive situation are making larger down payments at closing. The combination of these two payments sends the strongest indication yet that you are a serious player. Sellers generally believe these two offerings will help make the mortgage qualification process move smoothly and complete the transactions quickly. History shows the older the buyers, the higher the average down payment percentage. Millennials typically put a down payment at closing that is 8% of the offer price. Gen Xers offer 12% down and Baby Boomers typically put down 19% at closing, according to National Association of Realtors ® data.
People seeking that perfect place must be ready for all types of offer scenarios that will test their will. Be armed for battle.
Way to Be!