I did a video about winning as a buyer in a seller’s market last summer. I thought it was bad then. I was right, but I was wrong. I really didn’t conceive of how much harder things would get for buyers and I have all of my fingers and toes crossed hoping that it gets easier soon for buyers – I represent a LOT of them and it can be really hard to keep trying and not succeeding.
The only way that it will get easier is if more people decide to put their homes on the market. If you have been thinking about listing your home – now is the time! You may not even need to show it.
New construction is an option for people that want to buy, but at the same time demand for that is very high as well and they will be happy to take a contract now and begin to dig… in September, October or later.
Right now you have something like a 65% chance of NOT having your offer accepted right now. And that is if you’re in a GOOD position and well qualified and throw everything you have at it.
It’s come to this.
At our team meeting today we were talking about this subject and people are saying things like “37 offers”, “25 offers”, on a single listing in a couple of days. How can you possibly win in a situation like that? Sellers are looking at a spreadsheet of offers – what will make YOURS stand out in this crowd? List price isn’t going to do it.
Someone in my office said that one of the questions they now ask every buyer is “what can you bring to the table that no one else can? What will make YOU stand out?” At a certain point you can’t throw any more money at the problem and you have to get creative.
Examples that she gave of things that made sellers select their offer over others were tickets to a Packers game, a weekend at their cabin, etc.
I know this ridiculous on some level, like … this should be about getting a fair price and good terms for a home. It should not be the Hunger Games. But it IS the Hunger Games. If you understand this going in, you may have a shot at winning instead of making offer after offer and NOT winning, growing discouraged and frustrated and possibly homeless in the process.
The seller holds all the cards.
When you make an offer on a property there will be several things that you’ll have to decide on, and I’ll give you a list of the fundamentals but you have to go beyond that. In a balanced market or in a buyers market you would not have to throw absolutely everything at the wall to see what actually sticks, but we are in a market that is so firmly in the seller’s favor that you have to ask yourself “what am I NOT willing to do to get this property?”
In this market, the price is not the price. The price is the floor. If you find a magical property with no other offers you may be able to get away with list price. When I think I have found one of these I STILL encourage an escalation clause that will bump my buyer’s offer over the net price of the next highest offer in the event that one (or more) come in between when we submit it and when they evaluate the offer.
So understand what the maximum amount of money you are willing to pay for a property and then put that number in there and know that if you do not get the property you did AS MUCH as you could price-wise, and price is the number one consideration, but it isn’t everything!
In Minnesota, it is normal and typical to give 1% of purchase price for earnest money. In this market you want to demonstrate seriousness by giving MORE. You can pick a lump sum, or decide on a percentage. In normal circumstances this is refundable if the purchase agreement is cancelled because it doesn’t meet a contingency – inspection or financing or something else.
Some clients are designating an amount as NON-REFUNDABLE.
There is no offer without a pre-approval from a reputable bank. Not a pre-qualification – a pre-approval! Without some sort of statement that you can execute on the contract your offer will be placed directly into the trash bin.
The MOST desired form of financing is CONVENTIONAL. The reason for this is that there are no FHA or VA appraisers that may find inspection issues with a home. It’s one less potential hurdle to a successful closing.
Conventional financing has some misconceptions – many people think that means that you have to have 20% down. You do NOT have to have a 20% downpayment to get conventional financing. Talk to a loan officer about what your options are.
Speaking of downpayment, having a large one available is also a bonus. It shows financial health and stability and again gives the seller a feeling of comfort that the sale will actually close.
Not everyone can do it, but if you can, a cash deal carries weight! It’s one less contingency that has to be cleared before the transaction can close. If you do have the means, you will include proof of funds with your offer in the form of a statement or a screen shot of an account with the relevant account numbers removed from the image.
Sometimes this is an important criteria for a seller, and if you have the flexibility to be able to meet that sate, it is certainly a factor.
A purchase agreement has an option to indicate that the lender will supply a written statement to the seller that the loan is basically approved and ready to go. Having this in your offer is another thing that the listing agent will be looking for, not having that is a point of weakness.
This is a biggie.
Inspection periods are being reduced to very short time periods – 3 to 5 days instead of what was typically 10 as recently as one year go.
Buyers are waiving inspection, OR putting in writing that they will not ask for any repairs under x$ in value. You’re taking that risk either mostly or entirely off the seller. I would be selective on the homes that I chose to do this on if it were me buying. Some homes give a relative sense of comfort, while others you walk into and just feel that there is work that probably needs to be done. If the surface isn’t good, the subsurface likely isn’t much better.
A question to ask yourself when considering inspections and their value to you as a home buyer is to think about what information they give you and what would make you walk away from the home?
Home inspections can give you a certain amount of information, but even they are not a guarantee that the home will be problem free. It’s a status check. Do the appliances work they way they should, do the mechanicals? How is the roof? Is there anything frightening about the electrical? The inspector is looking for health and safety concerns.
If the inspector found that the the electrical needed a $1000 fix, would you walk away or would it take more than that?
If they find that the dishwasher works but is on it’s last legs and needs replacing soon, would that be enough? (If so, you’re probably not buying the right property).
I’m saying this because if you waive inspection and find a $1000 or a $5000 fix after you move in, will you still be happy you bought the home or will you regret your purchase?
If it means that you will not get the home if you’re in competition with someone that removes this contingency are you ok with that?
Because list price is basically the floor right now, sellers are getting large sums of money over asking price and that raises questions about meeting appraisal value if the home is being financed.
In the past, buyers and sellers would either meet somewhere in the middle or the seller may reduce their price, that is no longer the case.
Now buyers need to give a guarantee that they can make up the difference in cash if the appraisal comes in low. This is one reason why a high down payment is important, if it comes down to it, the amount financed can be higher and that money can be used to make up the difference on the appraisal.
Many of my sales in the past year have had appraisals waived by the bank because they can see that the value of the home is there by looking at neighborhood statistics, but if the other sales don’t support this an appraisal will still happen.
On listings, I have provided appraisers with copies of back-up offers that support the price that the buyers are getting. We work together to make sure that important information is shared.
Common Interest Community Recision Period
In Minnesota, if you’re buying a into a neighborhood that has an HOA, you are entitled to a 10 day right of recision period from the point at which you have received the last HOA document. On a recent offer the agent came back and said that not only did they want inspection waived but they wanted it in writing that the right of recision on the docs would be reduced to 3 days instead of 10.
In a BUYER’S market, we often ask for a seller to contribute to the buyer’s closing costs. That is a NO right now, the only way it could exist at all is to raise the offer price to cover that difference. In fact, on a listing that I had the BUYER paid the SELLER’S government closing fees. No one had ever heard of this before and now I’m seeing agents mention it all the time.
This one… well, a home warranty is a 500-700 dollars, it’s not something that you’ll want to ask a seller for at this point. One thing you can do is purchase one of your own.
So! That is the hard truth about buying in this market. Are you ready to get in the mix? Or better yet – thinking of selling? Now is the time – YOU dictate the terms.