Let’s face it… It’s hard to buy a home right now.
With house prices doubling and even tripling since the end of 2019, it has put homeownership into a different perspective. As the market has shifted to a seller’s market, where there are more people trying to buy a home than inventory available, people have also been forced to shift their plans.
Gone are the days when you could put an offer on a house and only need to beat out another offer or two. That two has become twenty… So, what does that mean for first-time homebuyers? Or fifth-time homebuyers?
This guide will help lead you through the conflict we call real estate. You’ll discover how to make an offer successfully in 2023, as we help you to navigate the battlefield in pursuit of conquest.
Preparing for the turf war
All great military tacticians have had an idea of what the battle was going to look like before it happened. While things obviously change in the heat of the moment, they had an idea of what to expect and how they were going to deal with it.
Making an offer on a home in 2023 is no different.
Without a “battleplan”, finding success in this market will be hard to come by. These three things will be crucial to winning your home.
Finding the right “Lieutenant”
Having an able-bodied officer to organize the chaos is crucial to attaining victory. In real estate, that lieutenant is a certified Realtor®.
Whether this is your first home or your tenth, having an experienced realtor on your side will make the difference whether you succeed in attaining a home. They will be your expert on your local market, understand your wants and needs in a home, and lay out the proper strategy for victory.
It’s worth noting, that the use of an agent on the buyer’s behalf does not cost the buyer anything, in MOST cases. Over 99% of the time, the seller is inclined to pay the buyer’s agent and their agent, (also known as the listing agent) a percentage of the sale price.
Do you have enough money in the war chest?
Aside from tactical planning, having enough finances to fund your conquest is the key in victory and defeat, and just as with real estate, money talks.
Having the cash available to pay the lump sum is one option that you can use to buy your next house. It is beneficial to both the buyer and the seller, but it does come with its pros and cons.
- Cash offers. These are more enticing to the seller because they don’t have to worry about financing falling through.
- Simplicity. It is a faster and more simplified closing process for both parties.
- Lower closing costs. (No lender fees, application fees, etc.)
- No mortgage payments. Or the interest that occurs with it.
- All your money is tied up in the house. If you end up in financial trouble and had to use all your savings to do so, you could end up house poor.
- Miss out on mortgage tax deductions. These allow homeowners with a mortgage to deduct interest paid, reducing taxable income.
- Added Charges. Even without a mortgage, additional fees such as property taxes, homeowners’ insurance, utilities, and HOA dues will still apply.
Take heed of this however, you never want to be in a position where you are house poor. Essentially, you own the home but are too poor from it to be able to do much else. Paying in cash requires you to have proof of finances, which generally takes the form of a bank statement and details of what your monthly income is.
A more traditional route with buying a home is getting a mortgage. This proves to the seller that you have the finances to purchase the home. Again, this comes with its pros and cons.
- Makes homeownership affordable. Whether it’s your first, or third home, paying your home off in installments instead of one lump sum helps to mitigate upfront costs.
- Mortgage debt has the perk of being tax-deductible. Married homeowning couples can normally write off mortgage interest on their taxes up to $750,000 or $350,000 if they file separately.
- Interest rates are lower than other types of borrowing. Lenders can off a multitude of mortgages like fixed-rate (specific rate the entire term of the loan) or tracker (interest rate is charged on the loan tracks of a different publicly available rate) mortgages.
- With a large amount of money borrowed comes the interest with it. Unless you plan to pay off your mortgage early, you will pay significantly more than the initial amount borrowed over the life of your loan.
- “Hidden” Fees. In addition to the predetermined amount and interest, there are other fees included such as loan origination fees, title search fees, and a host of others that could become an extra burden.
- Some mortgages such as variable-rate mortgages can be affected by the loss of property value. When this happens the rates tend to increase, which could put you in a troublesome spot financially. If you don’t have the funds to pay your mortgage the bank will foreclose on your home and with that come a litany of financial issues.
You can get a mortgage from a litany of places- online lenders, banks, credit unions, private lenders, and mortgage brokers. They will give you what is called a preapproval letter or proof of finances, which will be included in your offer to buy a property.
While it is good to check out each one to see their pros and cons, I would recommend that you go with a private lender. A private lender will be your sergeant. Someone who will be there for you at any time for just about anything.
Alex E. Saludes, a loan officer with Reach Home Loans, says that private lenders take extra steps that help you guarantee victory when you make an offer.
“Hard pre-approvals, hard credit pulls, 2 years of W2s, 30-day paystubs, bank statements where we can see where the money is coming and going. These things are imperative because if you don’t have that strength behind you, the deal is going to fly off the table.”
And while private lenders will generally cost more money, in a market that is moving so fast, a dedicated loan officer may do their utmost to help you and your agent close a deal. It’s an edge that eXp Realty Realtor Vanessa Getejanc can attest to. She works closely with Saludes and his assistance has proven invaluable, particularly over the past year.
“I was working with a client, and when we went to submit the offer, the listing agent told me there were 33 total offers on the table. After I told Alex about this, he decided to give the listing agent a call. It would turn out, that the only reason that my client’s offer was selected over the other 32, is because of that call.”
Saludes agrees, “Because of that communication, because I called and took the time to build that trust, to articulate our side of the deal, we beat out higher offers, cash only offers, it was a great win.”
Buying your way to victory
Greasing the palms of your opponent can be a secretive way to ensure victory. And while putting money down for a house isn’t a secret, how much you put down can be your ace in the hole.
In this case, that ace is called an “escrow deposit”.
Also known as an earnest money deposit, this sum of money indicates to the seller that you are a serious potential buyer on their house. It is used to protect the seller should you decide to negate the deal, in a way prohibited in the contract. Should you do that, the money is forfeited.
You won’t lose that money, if for example, the home appraisal shows the home isn’t worth what is being asked for it, or if major issues are found during the inspection. These are known as contingencies, which will be explained in more detail below.
The more money you decide to put upfront, the more enticing the deal is to the seller.
Recently, I witnessed a deal where two offers were made on a house. One was for full asking price with only two thousand dollars put into escrow. The other offered five thousand under the asking price, but with ten thousand dollars put into escrow. With more money offered upfront, the second offer won easily.
Determining the cost of victory
War can be a back-and-forth battle. Sometimes the path to victory is sacrifice.
Once you’ve found the home that you’re willing to fight for, it comes time to make that initial offer. Here a few of the things you, and hopefully your agent already should know.
What have similar victories cost?
Unfortunately, the cost of victory in war usually comes down to the lives lost.
Luckily that’s not the case in real estate.
When it comes time for you and your agent to make that first offer, they will take you through a process to determine an estimated amount. That starts with a CMA.
That’s short for “Comparative Market Analysis”. It is a comparison of the property that you are trying to purchase with other comparable properties in the surrounding vicinity. Taking factors such as age, square footage, construction type, style, and condition of the home into account.
This will give a good picture as to why homes are selling for different prices in that area and will also give your agent a good tool to negotiate when the time comes.
How long has the seller been battling?
Battles can wage on for what seems like an eternity, though no one ever wants that to be the case.
The same can be said for selling a home. Sellers typically want a quick victory.
In cities where the market is hot, it can take less than 50 days to sell a home. If you and your agent see a home that has been on the market longer than this, it may be of concern when the time comes to write a contract. You’ll want your agent to make sure that there are no High HOA Fees, High Mandatory Membership Fees and have a serious discussion if there are any High Repair Costs.
Another alternative is if the seller is in no rush to sell and just waiting for the highest and best offer to come in. They may also be overestimating the value of the home and convinced they can get more for it than what they will. These situations can make for a difficult battle on an offer because they may not be willing to budge.
Reach Home Loans office Alex E. Saludes agrees. My biggest tip is to understand that people are just that, people. If you can understand the human aspect of real estate, and have the right people beside you, everything will be fine.”
Other attributing factors
Aside from the price of victory, other factors will be tabulated as well.
- The date that you plan on closing the sale
- Having the seller provide a clear title, essentially, that there are no liens against the property or those that could pose a question of ownership
- Mandated state provisions and discourses
- Buyer’s responsibility in accordance to closing costs and other fees, and how they will be dispersed between buyer and seller
“Escalation clauses, (precedents that will automatically increase your purchase price by a certain amount above competing offers) help a lot, and dropping the appraisal contingency altogether, unfortunately, have become the norm in this sellers’ market.” eXp real estate agent Vanessa Getejanc stresses.
Once the time has finally come to submit the offer, you should have a decent idea of what the home you’re trying to buy is worth and how much house you can afford. Unless you hit the nail on the head precisely, be prepared for negotiations. This can range anywhere from price, what, if any, appliances are included, repairs before the sale and on and on.
Counteroffers are normal, and they will give you a clearer sense of what the seller is looking for in their ideal buyer.
Escaping the battle
Never being the one to retreat, in battle, it is useful to have an exit strategy if need be.
When it comes to offers in real estate, we call these contingencies. Contingencies, or “escape clauses”, allow you to safely exit the deal without forfeiture of your escrow deposit. In other words, you won’t lose all that money you offered up front if you walk away from the deal, should one of those contingencies trigger.
Commonly, contingencies revolve around inspection, appraisal, securing financing and title. The deal could be contingent on the seller finding a new home to buy, or it could be that the seller has a tenant renting out the home currently and they want to respect the lease of the tenant, there are a multitude of different contingencies that can be implemented into the contract.
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Article last modified on January 5, 2023. Published by Debt.com, LLC