1.) Use a good agent
A good agent does more than just set up an MLS feed, unlock doors, and turn on lights. You will want an agent who you are comfortable with, can trust, who is available and can keep up with you technology wise. Your agent should guide you through all aspects of the sale process, negotiate, and provide you with accurate insight for pricing. Some buyers think trying to work with the listing agent directly will gain them some advantage. The thought is this might move them to the top of the list, give them direct access to inside information, or entice the seller’s agent with negotiations of keeping more commission for themselves if they tip hand. I can assure you almost all of these things violate a Realtors code of ethics. Even if this did happen you likely will end up paying more than anyone else for the property, will have no one looking out for your best interests, in the process and have little luck negotiating directly with a professional agent who makes their living on commission.
2.) Understand your competition
If you think you have found a great deal, in the current 2021 market conditions, it’s safe to assume you are not the only one who knows about it. If you are just jumping into the home buying process, you might be joining other who have been on the hunt for some time. These buyers might be seasoned bidding war battlers. Many have seen dozens of homes, put offers in and lost on many of them. Perhaps they have even had an accepted offer that fell apart due to contingencies or unforeseen circumstances. It’s another reason to have a good agent, because some may find they have spent months or even years going through this process just to find out they are back at square one. It might have been worth it to have just paid an extra $5,000 – $10,000 and gotten the house you wanted from the start.
3.) Be one of the first in the home
You always want to be one of the first to evaluate any new opportunities that come on the market. Thais gives you time to review the disclosures and start doing preliminary research and due diligence. As an agent, I can often even pick up subtle clues just by seeing how the home is being marketed. Perhaps the seller’s agent has a track record of selling homes consistently above asking price in a short period of time or other things like that. Some or all of your Realtor’s fee may already built into the seller’s closing costs as part of their marketing agreement, it makes sense to take advantage of this and offload many of these responsibilities to them. Then you can focus on if you like the home, and how much you are willing to spend. One strategy is what I call the “take out offer’. Try to entice the seller into accepting your highest and best offer within a short time frame to avoid having to compete with it again with other buyers.
4.) Find out what the offer process is like
If the selling party isn’t biting on your take-out offer, you are most likely going to resubmit following their highest and best instructions, which usually includes a date and time along with any other submission guidelines. This is an opportunity to build rapport and try to find out any other information that might help you in the offer process. You might be able to find out why the seller is selling, if they have any preference for offer terms other than price like inspection, closing date or other terms important to them. You may also be able to find out through your agent what listing activity has been like, how many showings they have been getting, if the seller expects to get what they are asking, how many offers are in.
5.) Put your best foot forward
If a seller is calling for highest and best, you want to make sure you are submitting your highest and best because you most likely won’t get another chance. Highest means highest price and best means best terms. You don’t want to go crazy on an offer over asking, cutting terms for something that has been on several months. You do need to know when to sharpen your pencil if you have compelling news that there are 10 other competing offers. In that instance you probably don’t want to be under asking price and asking for concessions. Typically, if highest and best is being called, it means there are multiple offers in a short period of time which indicates the seller is most likely going to get at minimum the price they are asking. Think about it from the seller’s perspective, would you take an offer lower than what you were asking for if you had multiple offers after just days on the market? Probably not, in fact most sellers would consider doing a reduction before accepting a significantly lower offer.
6.) Prove your financing qualifications
There are a significant number of banks out there and a lot of pre-approval letters look the same, a one sheet piece of paper stating an amount you can borrow without any real rhyme or reason. There are some non-negotiable bare minimum things you typically need to qualify for a mortgage. These include having your last two years of qualifying income displayed on your tax returns for a lender to review. You would need to prove to your lender that you have a means of continuing this income through employment showing your current status and recent pay stubs. You will also need to have your credit run and provide your lender with valid identification. Different lenders have different guidelines for what’s required to issue this approval. My experience is that most lenders usually only run a credit check, and verbally verify income. A lot of things can change when they start to review your tax returns, marital status, ownership of other properties, discrepancies in tax filings etc. If you lay out your cards for the seller to see your credit score (or that it was checked), your debt-to-income ratio, your employment status, that you have no other property to sell etc. If this is presented and backed by a reputable lender it might provide the seller a piece of mind that you didn’t just have an approval printed off a form website this morning before you visited the property.
While I don’t recommend anyone completely waive their inspections, I can let you know that some buyers do. Most commonly these are seasoned buyers who don’t scare easily and know the strength of waiving their inspection can make up for potential short comings in other areas. They may even walk the house with a contractor or other professional they have a relationship with that they trust to give them a thumbs up or thumbs down. This isn’t always necessary, if a house is in good condition, I wouldn’t see any need for a seller to make any concessions in other areas of an offer in favor of it. However, it does often signify how serious a buyer is about being able to complete a purchase. From my experience, “as-is, how-is, where-is” buyers are often the easiest to work with and most likely to fulfill the terms they have stated. However, since like I said I don’t recommend anyone to waive their inspection, I do work with them to try to balance the advantages and disadvantages of their inspection contingency. A popular alternative to completely waiving your inspection is to add an additional contractual provision both in writing and verbally to clarify your intentions of how you wish to navigate your due diligence process. This might state something like electing to retain your inspection contingency but limiting it as such “Buyer agrees to purchase property As-Is. Inspection will be limited to structural, environmental, mechanical, and wood boring insects. No repairs or credits will be requested.” Basically, what this is stating is that you are electing to have your inspections and due diligence done, but it is only for your comfort of deciding if you wish to proceed with your terms based on your findings. There are many varying levels of this, but one way or another, I think it’s important to address the level of specificity in which you wish to proceed through your inspection period.
In the current 2021 market, banks are receiving appraisals that many in the industry believe are somewhat conservative. This means that if you want to buy a house for $500,000, and you need $25,000 to close on the loan, if the home appraised for $495,000 the bank is not going to lender you any more money. Either the seller will need to reduce their price, or you will need to come up with the $5,000 difference. Many people are confused as to why anyone would pay more than the appraisal price. My answer to this is that homes are not bought and sold strictly off appraisal price. If they were, there would be no point in marketing your property. An appraiser would just come over, say your home is worth X amount, and that would be the end of the story. This isn’t the case, however. You could have 5 different appraisers come up with 5 completely different prices, just as 5 different agents could sell your home and net you 5 different amounts. Appraisers don’t set the market; the market sets itself. What an appraiser does, is provide information to the lender on details they use to assess the risk in issuing your loan. The way this is typically done is by having a bank send out a non-related third party (licensed appraiser) to the premise for an independent assessment on if the price being offers is justified by similar sales in the area. In the event that you default on your loan, the bank (and in some sense the government) wants to know how much of their losses they may be able to recoup if they have to foreclose on the home. One way you can use this to your advantage against competing offers is to let the seller know you are willing and able to cover an appraisal difference up to a certain amount.
9.) Additional Documents
When you submit your offer to the seller you are usually signing a few things. This may include a brokerage agreement stating your relationship with your agent, consumer information disclosure statements, applicable seller disclosures, financial estimates etc. One thing that is nice to include, but not required, is a letter to the seller introducing yourself. You might state some things about yourself such as who you are, where you are from, why you are buying, and what you liked about the home. While this is usually one of the last pieces of consideration for accepting an offer, it’s ultimately up to the buyer what they wish to say if anything. Both parties will need to work together to complete the transaction so some buyers might see it as an advantage to introduce themselves and let the seller know who they might be working with.
It’s important to understand that home buying is process. Current market conditions dictate that part of that process is dealing with competition among other buyers. It’s not uncommon for buyers to not have their first offer accepted. There is much learning involved in going out, looking at homes, and working with an agent to understand why this process is unique. Don’t get discouraged if your first offer isn’t accepted, don’t take it personally or think they didn’t appreciate your letter. Just learn from each opportunity to understand what you can do to help you move in the right direction in achieving your goals. With a little patience, consistency and understanding, I’m confident every buyer will be able to find the right home for them.