How to Make Your Offer Stand Out in a Competitive Housing Market

Are you on the hunt for a new home? If so, you’ve probably experienced some of the frustrations of today’s competitive housing market – bidding wars, lightning-quick sales, low inventory, and more.

The competition is steep, and standing out is tough. But, if your offers keep coming up short, or even if you’re just getting ready to plunge into the market, there are some key things you can do to help make your offer stand out.

ESCALATION CLAUSE  

You’re probably familiar with “bidding wars” between buyers who are determined to make a winning offer on a house. Bidding wars can drive the price of a home up quickly, often over the asking price. 

These sorts of scenarios can be tricky for potential buyers to navigate. Obviously, you want your offer to beat out all the other offers while also not overpaying for the home. Writing an escalation clause into your offer can help avoid that pitfall. 

An escalation clause allows your offer to top any competing bid up to whatever point you stipulate. For example, you might offer $450,000 with an escalation of $1,000 over the highest offer, capped at $465,000. This ensures that — providing no other bid is higher than $465,000 — your offer will be the highest by $1,000.

It’s important to remember, however. There are other terms that can be important to a seller above and beyond price point. So, while an escalation clause can give you an advantage, it’s not necessarily a magic bullet. 

RENT BACK 

A hot housing market means homes sell quickly – sometimes so quickly that the sellers haven’t had a chance to close on their next home yet. Sometimes sellers also can’t buy a new home until they have the funds from the sale of their current home. 

If you’re a buyer who isn’t in a hurry to move, you could offer to rent back your new home to the previous owners for a predetermined period of time. 

You’ll naturally need to come to an agreement on the lease duration, and the monthly (or sometimes even daily) rent to charge. And while a rent back can be enticing for the right sellers, you’ll also need to navigate the temporary landlord/tenet relationship with the sellers once escrow has closed.

“AS IS” OFFERS AND INSPECTION WAIVERS 

If you’ve walked through a home you’d like to offer on and don’t see any obvious damage; you could consider making an “as-is” offer. Such an offer wouldn’t require the seller to make any repairs before closing. If properly stipulated, however, it would also still allow for an inspection period and for you to negotiate the price or even walk away if any substantial damage is uncovered.

Taking this tactic one step further, a buyer may also offer an inspection waiver. In such cases, a seller forfeits their right to inspect the home and its systems and negotiate money off the sales price for any necessary repairs. 

This is a more extreme and risky measure, particularly for older homes prone to issues. As a seller making such an offer, you are assuming responsibility for many potentially costly unknowns. On the other hand, such an offer could be just what you need to nudge your offer to the top of the heap.

APPRAISAL BRIDGES  

It’s important not to confuse inspections with home appraisals. While inspections are conducted as part of a buyer’s due diligence, appraisals are required by mortgage lenders to ensure a property is worth the proposed loan amount. And if the home doesn’t appraise for the agreed-upon price? Well, in that case, the buyer must either cover the difference, or the seller must agree to a reduction in the sales price.

In a hot market, however, the sales price of a home can quickly outpace its appraised value. Given that increased likelihood, sellers will be far more likely to go with offers from buyers they trust will be able to cover a potential gap in the sales price and appraised value. To that end, buyers can add an appraisal bridge to their offers, which stipulates the buyer will cover the difference (often up to a certain amount) in cash. 

While this could help give you an edge in the bidding process, be aware that you could end up paying more than the home’s true value, with no guarantee you’ll be able not recoup that money in the future, should you decide to sell.

GET A PRE-APPROVAL ADVANTAGE CERTIFICATE

Typically, when an offer is accepted, the buyer must put earnest money into an escrow account. This money is often 1%-3% of the sales price and, goes toward the down payment at the close of escrow. Earnest money is meant to show good faith on the part of the buyer and, in many cases, reimburses the seller for time lost on market, should the deal fall through.

Unfortunately, this can often mean the buyer loses their earnest money through no fault of their own. However, at Directors Mortgage, our Pre-Approval Advantage Certificate helps protect both the buyer and the seller, should a deal fall apart for financing reasons. For the buyer, we’ll reimburse up to $5,000 in earnest money. Or for the seller, we reimburse for the time lost having the house off the market, equal to the earnest money up to $5,000. Additionally, if appropriately structured, the buyer can use their Pre-Approval Advantage Certificate to release their earnest money to the seller early. This, of course, can give you an edge with sellers in a multiple offer situation. 

For more guidance on how to make your offer stand out, or to learn more about our Pre-Approval Advantage Certificate, reach out to a mortgage specialist in your area today at directorsmortgage.com/mortgage-specialists/.