As home prices rise and the inventory of homes for sale shrinks, home buyers realize they have to adapt to a market in which sellers call the shots.
Fall in love with a place that fits your budget, and get in line with other buyers bidding on the same home. That’s how the story goes for buyers in competitive markets.
“Some sellers are acting like their house is a Louis Vuitton store and are sort of saying, ‘If you can’t afford it, don’t walk into my house,’’’ says Patty Da Silva, owner of Green Realty Properties in Davie, Fla.
Unlike shoppers at a high-end store, home buyers in hot markets may need more than just money to get what they want. They must give sellers enough reasons to pick their offer over offers from other bidders.
Here are five ways to make your home offer stand out.
All text by Polyana da Costa, Bankrate.com contributor
Letting the seller know why you want to live in the property they once called home improves your chances of winning a bid.
That’s how home buyer Ann Banks recently landed a contract on a Cooper City, Fla., home.
“I wrote a letter to the sellers and said that I wanted to be close to my grandchildren and that their home was so beautiful, so spacious and close to their school,’’ Banks says.
At the time, she didn’t know the sellers, too, were moving to be near their own grandchildren. Banks’s letter and offer were submitted in the afternoon and accepted within hours. The sellers had at least three other offers to choose from.
Real estate agent Da Silva says the old-fashioned letter is one of the most useful tools for buyers these days.
“I always tell my clients: Do the letter,’’ she says. “If the sellers live there, they love the house, and they are more inclined to give it to someone they have more in common with. It’s the human factor.’’
If you are not sure what to write the seller, just speak from the heart, Banks says.
“Let them know how important the house is to you, how special it is,’’ she says. “Let them know you are going to take good care of it.’’
When you have competition, don’t ask the seller to give you 15 days to inspect the home.
“You don’t need more than five days to get an inspector there,’’ Da Silva says.
Some buyers will go as far as doing the inspection right away, before submitting the contract, so that the offer is not contingent on inspection. But that could mean throwing money out the window if the offer isn’t accepted.
One way to make your offer more attractive, while ensuring that you have enough time to get a proper inspection done, is to have an “as is’’ inspection contingency, says John Sullivan, vice president of Buyer’s Edge in Bethesda, Md.
“An ‘as is’ inspection contingency lets the client find out the condition of the property and lets the seller know that the buyer will not ask for any repairs,’’ he says. If the inspector finds any issues in the house, the buyer will have the choice to take the home as is or walk.
Home purchase contracts normally are contingent on financing and appraisal, giving home buyers the right to get their deposits back if they can’t finance the home or the appraisal doesn’t support the purchase price.
For home buyers who are getting a mortgage, waiving one or both contingencies can improve their chances when competing with cash buyers. But it’s risky.
“An offer that is not contingent on financing is basically a cash offer,’’ Da Silva says. “I don’t recommend it unless the buyer can afford it. If you do something like this, get completely approved, and work with a lender who can deliver — someone you trust — to minimize the risk.’’
As for appraisal contingencies, many listings these days require that offers be noncontingent on appraisal.
That means if the house doesn’t appraise for the purchase price, the buyer has to pay for the difference in cash because the lender will only finance based on the appraised value.
This isn’t a good strategy for buyers who have small down payments and are low on cash, Sullivan says. But for those who can afford the gamble and are determined to get the house, even if that means overpaying, this would certainly make the offer stand out from the rest.
Many buyers think they can save their highest and best offer for the end, when the seller presents a counteroffer. But sellers can simply accept the highest offer and reject the other offers without further negotiations.
One way to get your offer to stay in the game is to add an escalation clause to your offer, Sullivan says.
“You place an offer, and your offer is X, but you have a clause in there that says you will increase your offer by an X amount over any other bid up to a certain point,’’ he explains. “So for example, I’ll go in and offer full price with an escalation element of $2,000 up to whatever amount you determine.’’
It’s a safer way of making your offer stand out by letting the seller know you are willing to pay more for the house, without the risk of offering more than what is needed to get a contract. If the escalation clause is triggered, the sellers generally are required to show the other offers to the buyer, Sullivan says.
Don’t bother submitting an offer on a house without a loan preapproval in hand. And if you really want to please the seller, get preapproved for a conventional loan.
A preapproval letter demonstrates that the lender has verified your income and other required documents. It’s not a prequalification letter, which simply states that, based on the information provided, you could qualify for a loan.
Although it’s not always the case, some sellers prefer buyers who are preapproved for a conventional mortgage instead of a Federal Housing Administration loan.
“There’s a stigma with FHA and other government loans,’’ Da Silva says.
Loans insured by the FHA are not much more complicated or time-consuming than conventional loans, says Brett Sinnott, director of secondary marketing for CMG Mortgage Group in San Ramon, Calif.
“I’ve heard that some sellers don’t like FHA loans, but I’ve never really understood why,’’ he says. “I think they feel more confident with a buyer who has a larger down payment.’’
In the end, the seller will get a check, regardless of the type of loan. But since the point is to convince the seller that your offer is the best one, if you qualify for a conventional loan, go for it.