Making an offer isn’t as easy as it used to be.
Bidding wars are common in today’s housing market – and they can get heated. So how do you make sure your offer is the one the seller can’t refuse?
These seven tips will give you a better chance to beat the competition without overpaying.
The most important tip? Unless you’re making a cash offer, get preapproved for a mortgage loan as your first step. An offer backed by a preapproval letter looks much better to sellers than one without.
7 tips for making your best offer
When you’re shopping for a new home, you may find you have to compete with multiple offers on the same listing. This is especially true in a seller’s market.
While you want your offer to win, the last thing you should do is keep increasing your bids until you can no longer afford the home.
To get the house you want without overpaying, start by following these seven guidelines.
Many of your rivals will skip some of these steps, giving you a competitive edge.
|1||Get preapproved for a mortgage||The home-buying process doesn’t begin by searching real estate listings or even by calling a real estate agent.|
Instead, it should start with a mortgage preapproval from a lender.
A preapproval accomplishes two important steps:
Sellers give preference to buyers who are preapproved. Preapproval tells them when it’s time to close, you’ll have the money.
So before you hit the streets, get a preapproval letter from one or more lenders – not just a prequalification letter.
A preapproval letter confirms you’ll be able to borrow X amount based on that lender’s evaluation of your credit score, assets and income.
With prequalification, the lender is merely estimating how much you could borrow. It’s not committing to giving you a loan.
Although preapproval takes a bit longer and requires an application, it’s a worthwhile investment – especially in a competitive market.
And, when the seller accepts your offer and you sign a purchase agreement, your preapproval gives you a head start on your mortgage application.
|2||Leave some ‘wiggle room’ in your offer||Just because a bank is willing to loan you $250,000, doesn’t mean you should offer exactly $250,000 for a house. In fact, doing this may damage your credibility.|
Experienced sellers and real estate agents get nervous when buyers bid their full preapproval amount.
Why is this a bad idea?
Understand, just because you can afford your full preapproved loan amount doesn’t mean you should borrow that much.
Your lender won’t consider your long (expensive) commute, your pricey hobbies or your savings goals. You may want to borrow less and breathe easier.
Also, be sure you’re planning ahead for closing costs, which will come due on your home’s closing date. Typical closing costs equal 3% to 5% of the loan amount.
|3||Research the market and the seller||Your buyer’s agent can do a comparative market analysis to help you find the fair market value of homes you’re considering.|
Realtors may call this market data “comps,” and it’s a key piece of the puzzle as you put together your first offer.
But there’s more to market research than finding a fair offer price.
If you or your agent search public records and real estate listings, you may unearth valuable intel about the homeowner’s motivations for selling. This could help you structure a winning offer for less money.
Also, check the seller’s social media for clues. You may find you have things or people in common, and could help when negotiating. Just don’t overstep your bounds when trying to get personal.
For example, you might learn the seller is moving for a new job and needs a quick closing – faster than other buyers are willing to accept.
Or, you might learn the seller hasn’t yet found a new home and may want to delay closing. Armed with this information, you can craft a more tempting offer than your rivals for the same sale price (or less).
|4||Make a respectable offer||Submitting a lowball offer that isn’t supported by sales data usually backfires, especially in a sellers’ market.|
Buying a house isn’t like haggling at a flea market. So don’t offer $150,000 for a house worth $250,000 and then expect a counteroffer.
All too often, the seller will be insulted by your opening bid and won’t bother to return your calls.
If in doubt about your offer amount, think about the home sale from the perspective of the seller. As the seller, you could’ve put a decade or more of work and money into the home, keeping the place updated and structurally sound.
The seller may also have memories that linger in the empty rooms: A blemish on the baseboard or a faint stain on the carpet may spark a story in the seller’s mind.
You can’t assign a dollar value to this kind of emotional attachment, and it shouldn’t add a penny to the home purchase price. Still, making a lowball offer disregards this human aspect of the transaction, and it can short-circuit negotiations.
This doesn’t mean you can’t offer below the seller’s asking price; it just means you’ll have more success with a serious offer letter backed up by market data.
|5||Go easy on the contingencies||Most home-purchase offers include a few standard contingencies – things that need to happen before the deal can close.|
For example, it’s wise to make your offer contingent on a home inspection and your ability to get financing within a specified time.
The transaction should also include an appraisal contingency: If the home’s appraisal doesn’t justify the loan amount, the lender can’t move forward with your loan.
As a rule, however, contingencies are obstacles to successful closings. So keep them to a minimum.
In red-hot housing markets, skip contingencies for nonessential repairs and credits. It doesn’t hurt to ask, but be prepared to waive those contingencies to seal the deal.
Whatever you do, though, don’t waive the home inspection contingency. If you do, and later discover a major defect, you could lose your earnest money deposit if you back out of the deal.
|6||Use your own real estate agent – not the seller’s||When you find the right house, move fast. Delays can be deal killers. At the same time, don’t hire the seller’s agent (aka, listing agent) to expedite the process.|
Before you start house hunting, hire a buyer’s agent to represent your interests and help you negotiate.
The seller’s agent has a duty to promote the seller’s interests. That means getting the highest price and best terms for the seller, not you.
Using the seller’s agent creates a dual agency situation, which leaves your interests unprotected – except by you. And in that case, why bother hiring an agent?
After all, the agents’ commissions will likely be built into the sale price you’re paying. When you don’t have a buyer’s agent, the entire commission goes to the seller’s agent. That’s a lot of money to pay someone else’s agent.
|7||Keep your emotions in the background||Sometimes, buyers are so blinded by certain features – polished hardwood floors or swimming pools – they overlook obvious defects.|
This happens to experienced as well as first-time homebuyers.
It’s another reason to hire an agent. You need a third-party advisor at your side in case you fall in love with a home and try to bust your budget.
No matter how much you love a house, and how good your purchase offer, you won’t always win. Rather than overpaying, be prepared to walk away.
There’ll be more homes for sale that meet your needs and wants. It’s possible your true dream home is still out there.