2015 is going to another great season for the home-seller. Inventory still seems to be low. Rates are still absurdly low and FHA just announced that annual insurance premiums will be reduced which will give Buyers more buying power.*
For buyers, this will mean more competition for the available homes. And therefore it is likely that as a Buyer in the 2015 Spring market you may find yourself in a multiple offer situation. (This is when a seller receives more than one offer on a the home at the same time).
Here are some tips on how to make your offer stand-out in a multiple-offer situation:
1. Make sure you are FULLY pre-approved and not just pre-qualified. This requires that you find an excellent lender who will do the work for you ahead of time. Most lenders will not submit your file to underwriting until you have a contract on a home. Other lenders will make sure your file is complete with the exception of the contract and appraisal. This means that when you submit an offer to the seller, the seller is assured of your ability to deliver the funds on the day of the closing and offers the seller peace of mind when accepting your contract.
2. If you are serious about buying a home, you will likely have saved a decent down payment and you should have funds in reserve. The contract asks that you submit an Earnest Money deposit at signing. This money shows the seller that you are serious. The Earnest Money is your money. If you fulfill the contract, it is credited back to you at closing. The contract also allows you several contingencies to terminate after doing your due diligence. If inspections reveal serious structural issues or if the home does appraise for the agreed price, the buyer is within their rights to terminate the contract with Earnest Money returned to the buyer. Therefore the Earnest Money is only in jeopardy if the buyer defaults on the contract. So, if you are serious, show the seller your are serious with a larger Earnest Money deposit.
3. Do not write an offer contingent on the sale of your home. (This topic deserves its own blog post)
4. Be ready to pay your own closing costs. In the past, many sellers were willing to credit a portion of the sale price back to the buyer to pay for the buyer’s closing costs which includes lender fees, title fees and pre-paids. In this market and especially in a competing offer situation, the seller wants to see the cleanest offer possible. Talk with your lender ahead of time to see how much cash you need to have ready to cover your down payment and your own closing costs.
5. Be flexible with your closing date. Some sellers want to close as quickly as possible. Others have to wait for their next home to be available. If you can be flexible on timing, the seller may pick your offer over a different higher offer. The more flexible you can make yourself, the easier your purchase will be.
6. Add an escalation clause. I.E (I will pay $1057.00 more than the highest offer not to exceed $X). Talk to your agent about how to structure this so that all your bases are covered.
7. Write a note to the seller. I recently helped a seller sort through FIVE competing offers for her house. Two of the contracts had very similar offer prices and terms. Both used an escalation clause. Both were willing to pay more than the highest written offer on the table. One of the buyers wrote a note of introduction. In that case, the letter was the tipping point in helping the seller choose which offer to accept.
*Note: This means that borrowers will have more buying power. For a $120,000 borrowers, the reduction in annual premium will save them $50/month. Instead of paying $50 a month to mortgage insurance, that $50/month can go to a larger loan amount giving the borrower at the $120,000 about $12,000-$15,000 cushion in their price point.