Buying in a seller’s market can be frustrating, to say the least. You can expect multiple offers, best and final, and escalation clauses on every place that you like. This can leave you feeling defeated after weeks of lost bids. While it may seem like you can’t do much to lock down a place you like in this competitive market, there are some things you can do to help come out on top.
#1 – Know the comparables
This is very important for two reasons. The first is that listing agents may deliberately list below market value to generate high demand and more offers. By having a good understanding of the comparables (comps), you can see if it’s listed $10-15k under market value and price your offer accordingly. The second reason is that you want to make sure it’s going to appraise out. During underwriting, the lender will send an appraiser and if the home doesn’t appraise for the offer price, the bank will only lend you the appraised value. In this case, the seller will either have to drop the price or the buyer will have to bring extra money to the closing table or a combination of both.
#2 – Use an escalation clause
Escalation clauses can be controversial but they are one of the only ways to protect yourself from engaging in an uncapped bidding war. An escalation clause states that you will pay a fixed amount higher than the next highest offer with sufficient proof up to a certain value. For example, if your offer is $500,000 but you’re willing to pay as high as $525,000, you could say I offer $500,000 plus $2,000 over the next highest offer up to $525,000. That means if the sellers receive another offer for $515,000, your offer becomes $517,000.
#3 – Write a letter to the sellers
Sellers are people too, and if you can evoke their emotions and give them confidence that you are going to close regardless of any roadblocks during the transaction, they may go with your offer over a similar competing offer. I suggest giving a backstory about yourself: why you are buying now, why you like this area, and why this unit is perfect for you. Adding some pictures never hurts, either.
#4 – Increase your down payment
While this may not be an option for everyone, consider increasing your down payment to up your odds. If your offer has similar terms to a competing offer and one party is putting down 5% and the other is putting down 20%, the sellers will likely go with the offer with the higher down payment. This is because there’s less of a chance that there will not be issues during the lenders underwriting period.
#5 – Offer to take the property “as is”
Many first time home buyers are afraid of buying a property “as is,” however it can be a great tool to winning in a multiple offer situation. What many people don’t understand is that buying a property “as is” still allows you to do an inspection and back out of the deal, if there are large items that you didn’t expect. What it doesn’t allow for is you going back to the seller and asking for additional credit for any items in the report. If you do your research when viewing, and get all the ages and service dates of appliances and mechanicals, you should have a good idea of whether or not there are any big expenditures and you can figure that into your offer price. Seeing “as is” is a great sign to the seller because they know that once you go under contract the price they accepted is not going to change.
#6 – Match the sellers desired terms
When competing in a multiple offer situation you want to make sure you meet as many of the sellers desires as possible. Have your agent ask the listing agent what date the sellers want to close and if that works for you and the lender, offer that exact date.
#7 – Tax proration
This is another minor item that really doesn’t have a big monetary impact but will make a seller smile. With taxes going up every year, many people are requesting a 110% tax proration. Even if you opt to use a 100% or 105% tax proration, most sellers will be happy. Ultimately, the difference is usually around $100 or less, depending on how many prorated days you will be getting at closing, but it could be the change that allows you to win the property over a competing offer.
In summary, buying in a seller’s market can be frustrating but using some or all of the tools above, you can increase your chances of winning the home you want. Happy Hunting!
Matt Engle Real Estate Broker 717.658.0899
Blog by: Matt Engle
Matt represents clients buying and selling residential real estate and investments in Chicago in addition to having a wealth of experience in residential leasing. He intently listens to his clients’ needs and thoughtfully guides by serving as a professional, educated, and responsive real estate advisor.