Before the health lockdowns, home sale inventory was already well below the volume to maintain a healthy housing market. Many home owners decided to put off their spring and summer home sales this year as a result of health concerns, further reducing the available home sale inventory. The result was that the number of home buyers competing for one home increased. Low home sale inventory continues to be an issue, and there is still a high probability of competing with other buyer offers on a home. As a home buyer, you are probably wondering how to win the multiple offer scenario. It comes down to home buying persistence.
The obvious way to win a bidding war is to make the most attractive offer to the seller. But that’s easier said than done. The reality is that beating out multiple home buyer offers means you need to be organized, and go in with your best offer. And if you lose out on the home, don’t give up.
First, talk to a mortgage lender before looking at homes. Have the loan officer review your credit and income to determine what mortgage program is best for you, and get pre-approved. Once you’re pre-approved, you can be confident about making an offer on a home. Your mortgage application should also be easier because you’ve already given documents to the loan officer. But the most important reason for a pre-approval is for the seller to feel confident with your offer.
When the seller reviews multiple offers, they usually rank offers with contingencies lower than the non-contingent offers. Rather than foregoing the home inspection, consider having a pre-offer home inspection. The pre-offer inspection will allow you to determine the condition of the home so your offer will be more attractive to the seller.
As a home buyer, you should try to gain some insight into what the seller wants . You may think that the seller just wants the highest price. But that’s not always true. In multiple offer situations, the home seller looks at all factors, including price AND terms (including deposit, closing date, contingencies, etc.).
Should you use an escalation clause? Maybe. In a multiple offer situation, a clean offer is usually best. This means making your best offer. But if you decide to use an escalation clause, make sure you are aware of the cap (limit to price), and your escalation factor. Make your escalation factor is worthwhile for the seller; meaning if you’re the highest price by $500 or $1,000, the seller may consider other factors in their decision. Also make sure that your escalation is in line with the estimated appraised value.
Don’t get discouraged if you lose out in multiple offer scenarios. Stick with it and have home buying persistence. Sometimes, reassessing your home buying strategy may be warranted. And your home buying persistence may mean that you look at alternative sales.
If you’re feeling a little skittish about encountering a multiple offer scenario, or already have lost a bidding war, look for homes that have little or no home buyer competition. Besides looking at “ugly” or fixer-upper homes, you may also consider FSBO (sale by owner), bank owned homes, and auctions. Ask your agent to canvas the neighborhood asking homeowners if they want to sell, as well as calling expired listings.
Fixer-upper homes have potential and the price can usually be negotiated. If you’re worried about the cost of renovations on fixer-uppers, talk to your loan officer about renovation loans, such as the FHA 203k. Renovation loans provide you the funding to acquire the property, and the funds to rehab the property.
By Dan Krell
Copyright © 2020
Original located at https://dankrell.com/blog/2020/11/13/home-buying-persistence/
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.