It’s no secret that buying real estate has become something of a competitive sport across the United States. Housing inventory is low, yet demand for quality housing is high. To compound matters, new homes aren’t being built fast enough to meet the rising demand for quality housing. In cities like Denver and San Francisco, inventory shortages are so severe that homes are swept off the market in mere days. In these hyper-competitive markets, cash is king.
Buyers going the mortgage route often find themselves contending with bidding wars and all-cash offers. In the most competitive markets, it’s not uncommon for homes to sell well over asking price. If you’re looking to finance a home, putting in a competitive offer can be a challenge. How are you supposed to beat multiple bids, not to mention all-cash offers?
Eave has a few ideas. Here are our go-to tips for staying competitive in today’s cutthroat housing market:
Prepare Yourself For What’s to Come
The first thing you should do when you are gearing up to buy a home? Get all your ducks in a row. Let’s keep it real: buying a home is stressful. The more work you can do up front before entering the market, the better. The following are a few things you can do to get prepared for a tight market:
Get your finances sorted: You should have your finances in order well before even searching for a home. That means saving up a sizable chunk of money for a down payment, improving your credit score as much as possible, and meeting with a trusted financial adviser to ensure your financial picture is sound enough to take the plunge into a new home. Pull your credit report to make sure there are no blemishes that need fixing or explaining when it comes time to finance. The better your financial picture entering the home buying process, the stronger your offer will be.
Gather up your records: Buying a home requires a lot of paperwork. To make things easier on yourself, start compiling all of the records and information you’ll need before you start the process. That way, if you need to order copies of any missing documents, you’ll have plenty of time to do so. Remember that issues with paperwork can lead to financing delays. Have the necessary documents sorted before you begin the process. At a minimum, you’ll need:
- Income verification such as pay stubs, W2s, 1099s, etc. for the past 2 years
- Bank statements and proof of any liquid assets for the last 60 days that you plan to use for down payment, closing costs and reserves.
- Gift letters from any family member that is gifting you money for the home
- Your address/rent history for the past 2 years
- Your employment history for the past 2 years
- Proof of any other income such as disability, dividends, bonuses, social security or pension if you want to use them to qualify.
- Any child support/alimony debts you pay
- Information on any debts you owe such as car loans, your current home, credit cards, student loans, etc.
- Information on non liquid asset accounts such as life insurance, debts, bonds, stocks, etc.
Do your research: Not only do you need to prepare financially, but home shopping requires quite a bit of research. Compare lenders, look into realtors, and research neighborhoods so you understand the local market. Some realtors release newsletters offering valuable market information. Take advantage of everything that’s out there: listing tools, blogs, real estate reports and the expertise of your local real estate professionals. Knowledge is power. Understanding the ins and outs of your market will equip you to put together the strongest offer possible when the time comes.
Find the Right Real Estate Team
Finding the right real estate team is a huge advantage in a competitive market. A good realtor with a lot of experience will act as your advocate, and help you navigate a tough market with ease. Denver-based Realtor Steve Harder urges home buyers to look beyond just hiring a realtor, and instead take a team-based approach. “Talk to the broker’s partners,” Harder says. “It’s not just about having a realtor help you, it’s about having a team help you. That means you want to reach out to the mortgage lender, the employing broker, and any other primary partners.”
Harder also recommends calling several past clients of the realtor before making a final decision on working with them. “If they don’t have a list of clients who are willing to brag about their services and level of communication, that’s not a good sign,” he cautions. “Get your hands on five or six recent clients — recent meaning in the last six months — and talk to them. Once you’ve looked more closely at the team and talked to past clients, that should give you an idea of whether the realtor is a good fit for you. Fit is important, because you have to trust and enjoy working together.”
Choose a Lender with Local Relationships
We’ve written before on how a local loan officer can help you win a bidding war. What it boils down to is that in a competitive market, local relationships are key. “Agents become aware of a local loan officer,” shared Richard Helali, one of Eave’s San Francisco-based loan officers. “Eventually when they see an offer come through with that loan officer’s name on the pre-approval, they think ‘oh, they were awesome last time, I know these people!’”
Further, a lender with local relationships can offer you speed. Time is of the essence in cutthroat markets. A national lender may not prioritize your application, or they might not understand the unique needs of lending in your market. You could be bounced from loan officer to loan officer, with no true point of contact to guide you through the process. Meanwhile, a boutique lender using a local loan officer will understand your specific market and how to get you to the closing table sooner and with less hiccups.
Ask prospective lenders if they have a solid record of closing deals in your market, and what they’ll do to make sure you’re able to close quickly. Find out if they use local appraisers. A good local appraiser knows the ins and outs of each neighborhood, and will understand the difference in the value of homes from one block to the next. Finally, ask if you’ll have a dedicated loan officer to help you through the transaction. This can help you get answers quickly and more accurately. And you’ll need every advantage you can get to win over the competition.
Strengthen Your Offer
There are a multitude of ways to strengthen a home offer. Here are a few you should consider when buying in a competitive market:
- Include a strong pre-approval or conditional approval: to have your offer considered even when there’s an all-cash offer in the mix, you’ll need a strong pre-approval or conditional approval. Basically, you’ll want your lender to do as much underwriting as possible upfront, before you’re ready to make an offer on a home. This shows the seller you’re a serious buyer who’s able to secure proper financing for the home. Financing issues account for 37 percent of delays to the closing table. A seller wants to minimize the potential for issues. So, find a lender who will underwrite your finances before you even make an offer on a home. At Eave, we fully assess your finances within one business day, allowing you to go to the negotiating table with confidence and power.
- Put down a competitive Earnest Money Deposit: An earnest money deposit (EMD) shows the seller that you’re a good faith buyer who’s ready to close on a home. Typically, a home seller contractually requires an EMD and it’s common for buyers to put down anywhere from 1 to 3 percent. But in competitive markets like the Bay Area, buyers tend to put down more, even up to 10 percent. If you want to show a seller you’re serious about their home, consider putting in a competitive EMD that will set you apart from the rest.
- Make sure your offer is is complete: Your offer should include all relevant disclosures, forms and information the seller needs to make a decision. When a seller is fielding multiple bids, incomplete offers could end up in the trash. This is the time to pay attention to details, and make sure absolutely everything is included to keep your offer in the running.
- Offer above asking: One way to potentially compete with cash is to offer more than asking price. Cash buyers often offer just around (or sometimes even a bit below) asking price. The cash buyer knows their offer is already attractive: it’s easier, faster and more certain than a financing offer. One way to combat this is to bid more than asking. In a competitive market, homes often sell for more than asking price, so this is pretty par for the course. You may also consider an escalator clause, which essentially states that you will meet a competing bid up to a certain price point.
- Make a large down payment: A large down payment is another way to strengthen your offer. Of course, it’s common advice that you should save up as much as possible for a down payment when buying a home. But in a competitive market, it’s more important than ever. You want to show the seller that you’re able to afford this home, and that your financing will likely clear. A sizable down payment can send a message to the seller that you are a serious buyer who’s ready to put your money where your mouth is.
- Accommodate the seller’s closing preferences: Typically, a home seller is working on a timeline. They might have another home they’re trying to get into, or they might need to sell to start a job in another location. Whatever the reason, nearly every seller has a preference as to timeline for the sale. And not everybody wants to sell as quickly as possible. One way you can be an attractive buyer is to agree to accommodate this timeline. If the seller is looking to move the home quickly, you should construct your offer to make that possible. If the seller needs to stay in the home for a few months to finish a school year, you might include that concession in your offer. When it comes down to it, you want your offer to meet the needs of the seller.
Consider Removing Contingencies
As anyone who has ever purchased or sold a home knows, things don’t always go according to plan. And that makes sellers nervous when they’re choosing an offer. There are few things more frustrating for a seller than having the deal fall through weeks into the process and needing to start over. Around five percent of real estate contracts are terminated before closing, and many, many more are delayed because of issues with financing. You can probably understand why a lot of sellers go with the sure thing — cash — over the mere possibility of a buyer securing financing.
A big way you can make your offer more attractive to a seller when competing with cash? Contingency removal. A contingency is a clause in a real estate contract stating that certain conditions must be met (such as financing or home appraisal) before the sale can clear. By removing some of these contingencies, you tell the seller “I’m ready to move on this thing, and I’m going to remove as many hurdles as possible to make this sale happen.” Before choosing to waive contingencies, you should talk with your realtor and/or lawyer to make sure you understand the full risks associated with doing so. While removing contingencies can make sense for highly qualified borrowers, you should also know that it can put your earnest money deposit at risk if the transaction falls through.
If you’re going this route, you need to find a lender that supports contingency removal. At Eave, we fully assess your finances within one business day and offer a “High Certainty” program for exceptionally strong buyers. Through this program, we will support you should you choose to remove certain contingencies. Ultimately, this strengthens your offer and allows you to compete with cash. Even better? We guarantee to get you to the closing table in 21 days (often sooner!), which is a huge bonus in a cutthroat market. Offers backed by an Eave Approval are more likely to be accepted, so you can break through the competition and get into the home of your dreams.
Write a Letter to The Seller
One final tip to give your offer an edge over the competition? Write a letter to the seller stating what you love about the house, and why you’re making an offer. Realtors advise keeping these letters short, sweet, personal and to-the-point. If you’re planning renovations or you want to rent the place out, that’s probably not going to give anyone the warm fuzzies. So try to focus on what’s great about the home and what a good neighbor you’ll be.
Remember, buying and selling a home can evoke a lot of emotions. Don’t assume the seller is only thinking about money. They are also likely thinking about the legacy of their family home, and the impact you’ll have on the community. If you position yourself as someone who will take good care of the home and be a courteous neighbor, that can go a long way towards pushing your offer to the top.
With Eave’s ability to do a full financial underwrite of a borrower within one business day, contingency removal support, and competitive rates, you can make a cash-like offer and cut through the competition.