Without making it about a specific time in history, we are all aware of the fact that real estate has its ups and downs. Sometime the pendulum swings in favor of buyers and other times it does favors sellers. Though many social economic factors may play a role in how the market behaves, it usually comes down to a simple matter of supply and demand. When there is more demand for houses than willing sellers in a specific area, prices tend to go up and deals get increasingly competitive.
This article is about those times when it seems like the deck is stacked against buyers while sellers and seller agents appear to have total control. Some may have the option to weather the storm while renting for a little longer. Others however simply do not have the luxury of waiting for “the right time” and must manage to not only find the right property but also stand out from competing offers and win.
This sounds like a simple equation but unfortunately, the average person, in many cases is rather uninformed when it comes to what goes on behind the curtains during a real estate transaction. It’s a bit similar to when new college graduates go for their very first rounds of job interviews. They may be well qualified for the position but their lack of experience around the workplace and not knowing how to navigate the check points of an interview may cost them the opportunity of a lifetime. The same principle applies to buying a home. You may have all your ducks in a row but not knowing how to structure an offer in a way that entices the seller may hinder your chances of getting your offer accepted.
The question now becomes, what is the winning formula for making offers in a competitive seller’s market? Beyond a generous PURCHASE PRICE, sellers tend to care about three things: CASH, TIME and CONVENIENCE. Here is how the three concepts apply in an actual real estate transaction.
CASH is king – Do not be alarmed. This does not mean that only cash offers get accepted, however reasonable cash offers along with a solid proof of funds (POF) tend to automatically get bumped up to the top of the pile. Why? Because having cash on hand indicates a stronger financial backing which in turn appears as a safer bet to any seller. Even if you are getting a mortgage, here are few pointers to help make your offer appear “safer”:
- Higher down payment typically 20% or more if you can afford it.
- Ideally your escrow deposit or earnest money must be 1 to 3% of the total purchase price. The higher on that scale, the better it looks to a cautious seller.
- Get a preapproval letter from a reputable financial institution or a trustworthy lender that shows the proper amount (maybe more but definitely not less than the offered price)
TIME holds value – we’ve all heard the term “time is money”, well when it comes to real estate transactions, Time in and of itself holds a much greater value than most people can fathom. Unless otherwise indicated, sellers typically would rather close sooner than later.
- Escrow/contract periods are customarily set for 30 days. You may want check with your lender first but reducing this period to 21 days will make your offer stand out to most sellers. If it’s Cash transaction, offer to close even sooner.
- The inspection period, a crucial part of your purchase contract is typically 14 day in the state of Florida. Reducing this time frame to 10 or even 7 days would let the sellers know you’re willing to accelerate the process. Read the linked article to learn more about Inspection periods and their legal implications.
CONVENIENCE is convincing – In a sellers’ market it goes without saying that we want to appeal to a property owner’s personal needs as much as we can. Basically, you want to give the impression of being the candidate that will cause the least amount of stress while delivering on everything needed to close the deal in a timely manner. Here are some of the most reliable ways to convey the right attitude:
- Indicate in writing that you are willing and prepared to actively work with all parties involved and close as swiftly and seamlessly as possible.
- Avoid making a multitude of demands for repairs and cosmetic upgrades.
- Asking for the seller to cover closing cost up front without a solid justification would not be a wise move in a competitive sellers’ market.
Ultimately, you want to convey the impressing that you are the candidate that will be the most reliable, attentive, and accommodating of all. Always remember:
CASH MEANS SAFE, TIME HOLDS VALUE & CONVENIENCE IS CONVINCING.
Now I can almost hear the murmurs in the back of the room: “What about negotiating a good deal?” Let’s face it. Most of us aren’t happy acquiring what we want unless we feel like we got ourselves a “DEAL”. How can one expect a great deal in this type of situation? It does appear as if with these strategies, you simply acquiesce to the needs and wants of the selling party and surrender your negotiating power. Well, here’s my take on this particular subject matter:
Negotiating without leverage in not negotiating. It is instead, gambling.
Please follow my train of thought here. When a seller has a multitude of amazing offers to review; unless yours is outstanding in some way of another, you unfortunately have no leverage. How can you negotiate when you are still outside looking in through the window hopping to get a seat the table? Submitting an offer that appeals to the sellers’ requirements is what grants you a seat at the proverbial negotiating table.
When your offer is accepted, you have earned the right to make reasonable demands. Please notice my use of the word “reasonable”. Asking for repairs, closing costs or concessions based on some findings during the inspection phase is completely within your rights and a fair negotiation tactic.
In conclusion, buying a property in a lopsided sellers’ market takes courage. Prepare yourself mentally and emotionally for the journey and try to maintain a positive attitude through it all. Remember to always keep an eye on the prize – after all you are making your dream come true.