You’ve all read the headlines – the housing market is on a streak hotter than an expert card-counter at the blackjack table. The news is replete with stories of skyrocketing prices, low inventories, brutal bidding wars, buyers paying 10-20% above market value without question, and even all-cash offers from corporate buyers. All of which is to say, this is a seller’s paradise. For buyers, not so much.
Competition is stiff out there. Even though prices are high, demand is strong and shows little sign of abating. We’re in the middle of the traditionally busy season for real estate, and we started from an already chaotic point in the market. As interest rates remained low, and as savings increased over the course of the pandemic, more and more prospective buyers have found themselves in a good position to take the plunge. This is also the reason why higher and higher prices seem to not have deterred many buyers, since lower interest rates end up saving thousands over the course of a mortgage, and what they save often turns out to be more than the difference in price on the home.
If you include the powerful incentive to buy now and lock in a low interest rate, it’s easy to see why we’re in the middle of a veritable gold rush for homes right now. Add all of that up, and it makes for a truly daunting experience for buyers.
Even in normal times – and we’re not in normal times by any means – if you’re buying, you need to be able to distinguish your offer from other buyers. In this market, you’ve got your work cut out for you. So what’s a would-be homeowner to do?
To start, make sure you have a good buyer’s agent. They’re going to be your lifeline and roadmap through this challenging process. Even on a good day, buying a home is difficult enough; when you have to compete against other buyers and even all-cash offers, it becomes that much harder.
When it comes to making compelling offers on a home, I usually tell buyers that it’s not always the amount of the offer, but sometimes the time frame on which it’s placed. Often, sellers are themselves moving to another home, and this involves buying one (basically, they’re doing the same thing you are when they’re not busy trying to sell their home, which is literally double the work). So, if you’re not in a hurry to move in, giving a generous timetable in your offer can make a real difference. This is especially important now because, in this market, chances are the seller may need some time to find and close on their new home. Giving them that breathing room might very well out-compete even the stoutest of all-cash offers.
Now more than ever, it’s important to keep your offer clean. I know, this means giving up some concessions, but we are where we are. What I mean by a clean offer is attaching as few contingencies as possible to it, such as an appraisal, or the seller’s purchase of a home. This gives the seller some assurance that you have fewer opportunities to back out of a contract, and certainty is everything to a seller – this also helps them move forward with their own purchase of a new home, and this can make a real difference in nudging the entire process along. You should also avoid asking for seller concessions, like help with closing costs. It’s not ideal to give up this much, but it’s a huge help when it comes to making your offer more attractive than those of other buyers. How much should you be prepared to concede? It depends on what you’re willing to give up in order to have this particular home or, if the supply is really that low, any home. Obviously, this should be discussed with your agent on a case-by-case basis, because you don’t want to give up a home inspection on a fixer-upper when the goal is to move your family into it.
You can also help your offer stand out by putting down an EMD or earnest money deposit. It shows that you’re serious about the home. Typically, an EMD is held by third parties like attorneys or title companies, and goes toward your down payment and/or closing costs, usually totaling 1-3% of both. Ideally though, you want to put down as high an amount as possible, because that increases the chances of your offer being accepted. In this case, more is more. Again, this gives the seller some assurance, but make sure that you’re certain about buying the home. Depending on the contract, if you put down an EMD and don’t purchase the house, in some cases the seller can keep that deposit in compensation for the time their home is off the market.
Finally, if you’ve bought your home within the last six months and found yourself needing to move again, delayed financing is a potential option. This allows buyers to access the equity of their homes immediately by choosing a cash-out mortgage. This provides buy-in cash to remove financing contingency in ultra-competitive real estate markets, and can help you compete with all-cash offers as well as give the seller that coveted assurance that keeps coming up in this blog (hint: yes, it’s that important!).
You can access the equity in your property sooner than a standard cash out refinance, and this can help accelerate the buying process. Lenders are also more commonly using programs that allow you to buy the house, pay cash, and then finance after the fact. Again, this can make your offer a lot more competitive among one or more other all-cash offers.
This may not be a possibility for everyone, but it’s an example of how lenders are willing to adapt to help buyers in this new environment. Make sure you ask your agent and your lender what options are available to you! As always, feel free to reach out to me with any questions!
Matt Guarro is a top-producing Florida REALTOR servicing the New Smyrna Beach, Winter Park, Edgewater, Port Orange, and Daytona Beach areas.