Making a Competitive Offer in a Sellers’ Market (Article)

Making a Competitive Offer in a Sellers’ Market

If you are in the market for a new home, you might have noticed that the real estate market is a little bit wild right now. If you looked up “Sellers’ Market” in the dictionary, I’m pretty sure they would direct you to 2021. According to the National Association of Realtors, median home prices in the U.S. are up 17.2% from a year ago. Many homes receive multiple offers within hours of going on the market and sell well above asking price. This is the kind of market you like to see if you are a real estate agent or seller, but can be downright stressful for the buyer. Losing your dream home to another offer can be crushing. So, let’s talk about using how you pay for a home as a tool to make your offer more competitive.

First, cash is king. If you can pay all or mostly cash, you are in a strong position to win a bidding war. Sellers don’t want to waste time on a deal that might fall through due to financing and they know people who make large down payments are very likely to come through on the financing portion. The problem with this is that most people cannot realistically pay cash for a home, so we need to look at the financing.

First time homebuyers often use FHA loans because they require lower down payments, allow higher debt levels and accept lower credit ratings. VA loans can also be attractive to those who qualify for similar reasons. The downside to these loans is twofold: First, sellers may not be confident that buyers will come through if they are using these types of loans as they may assume the buyer has poor credit. Additionally, both loan types require inspections to ensure the property meets standards and may require the sellers to make costly repairs prior to closing.

Conventional loans on the other hand are much less stringent on inspection requirements and are far more attractive to sellers. Offers with conventional financing put you right below those making cash offers (which are rare) and put you in a much better position to win a bidding war. If you are going this route, try to raise enough cash to put down at least 20%.

In this competitive buying environment, you may be tempted to make your offer more appealing by removing contingencies such as prior home sale, appraisal, or home inspection. But don’t get too caught up on getting that perfect home and lose sight of protecting your finances. Often these contingencies protect the buyer from unforeseen and costly mistakes. Consult with a good real estate broker and attorney before removing contingencies designed to protect you.

Lastly, housing markets surely will cool over time. So, along with cash, a good dose of patience is also required.

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