We’re in a seller’s market. Just look at the median market time for detached homes in San Diego county last month: 12 days. That’s incredibly low. Homes are selling quickly and good homes will sell in less than a week.
As a potential home buyer, you have to be savvy when the competition is fierce and inventory is tight. Multiple offers are the norm on well-priced properties. Are you wondering how to get an accepted offer in a seller’s market?
Here are ten tips to help you get the seller to accept your offer:
1. Get Loan Pre-Approval
This is a given. If you haven’t talked to a loan officer – or two – about getting loan pre-approval, start now. You will want to have a pre-approval letter from the lender of your choice before looking at homes.
Investopedia boils down what you need for loan pre-approval to five things: proof of income, proof of assets, good credit, employment verification, and documentation. Reach out to a loan officer and he or she will tell you exactly what they need to get the process started.
2. Have Proof of Funds Ready
Although not always required, your offer will be much stronger if you include proof of funds. Proof of funds can be bank statements and/or investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. An FHA loan requires a down payment of as low as 3.5% of the cost of the home, while conventional home loans require 10 to 20%, depending on the loan program.
If you plan on using money from a friend or relative to help with the down payment, you will need a gift letter to prove that this is not a loan. Talk to your loan officer about how best to document these funds.
3. Set a Realistic Price Point
To help get to an accepted offer in a competitive market, one strategy is to be conservative on your price point, so you have the option of outbidding other buyers while remaining in your budget. Set your maximum price 10% below what you can actually afford to give yourself room to bid up.
Remember to include an appraisal contingency in your offer, so you have the option of canceling the contract if the appraisal comes in too low and you/the seller don’t want to make up the difference. Any lender will require an appraisal contingency. In a hot, seller’s market, low appraisals can be an issue and some lenders, such as credit unions, can be notorious for being conservative on appraisals.
4. Increase Your Initial Deposit
When you are ready to submit an offer, talk to your agent about the terms of the contract. Your initial deposit, sometimes called your earnest money deposit, is due within 3 days of opening escrow and will be counted towards your total down payment. Typically, the initial deposit is 1 to 3% of the purchase price. Setting this amount on the offer at 3% or more will make your offer stronger, since you have more skin in the game.
If you cancel the contract before all of your contingencies are removed, then you will be refunded your initial deposit. If you cancel the contract after contingencies are removed, then you have not performed according to the agreement and risk losing some or all of your initial deposit. Read the purchase agreement carefully and ask your agent questions you have about the terms.
5. Shorten the Contingency Period
The default timeline in the California Residential Purchase Agreement for conducting your buyer inspections is 17 days. If you can get your inspection scheduled quickly, you can usually shorten this contingency period without sacrificing your due diligence. The shorter your contingency period, the more attractive the offer, because the seller knows once you remove all of your contingencies, the chance of you canceling the contract is reduced significantly.
6. Pay with Cash
This one isn’t possible for most of us, but if you have the cash, an all-cash offer with a short escrow is always appealing to sellers. Even if you don’t pay all cash, a down payment of over 20% shows sellers your are well qualified and able to close.
7. Ask What the Seller Wants
The highest purchase price usually wins, but sometimes there are other factors at play. The only way to know about these factors is to ask. Have your agent call the listing agent and ask is there anything other than price that will make your offer look more attractive to the seller.
A clean offer that includes the seller’s preferred escrow and title companies can make a difference. Maybe the seller prefers a conventional loan to an FHA loan? In that case, see if you can present an offer with conventional financing.
Time can also be important to the seller and may sway them to accept your offer, which brings me to my next tip…
8. Be Flexible With Your Move-in Date
Sellers often need to find a replacement property, so if you are flexible with your move-in date, that can be very attractive to the sellers. Offer to do a rent back, where after the close of escrow, you – the buyer – will become the landlord and the seller becomes the tenant. A written agreement will need to be in place to set the terms of the lease, so make sure to get that completed in a timely fashion.
9. Ask Your Loan Officer to Call the Listing Agent
To help validate your financial strength, ask your loan officer to call the listing agent and talk through your qualifications. The listing agent may have questions and the loan officer can answer them before presenting your offer to the seller. This also shows that your lender is on top of things and focused on making it a smooth transaction.
10. Write an Offer Letter
An offer letter can be a compelling part of your offer. However, I think this works best if there is some commonality between you and the seller. For example, you are both Navy vets or you are starting a family and the sellers raised a family in the home. That is an authentic connection that could possibly put your offer on the top of the list. Many times multiple offers are very close to each other – or even identical – in terms of price, so an emotional connection between prospective buyer and home seller can be the tipping point towards an accepted offer.
The reason you want to include an offer letter is that it humanizes the offer and will set you apart from offers without letters. For tips on how to write one, read this Realtor.com article.
Do you have any additional tips on how to get an accepted offer in a seller’s market? Leave them in the comments below.