Buying a home in a seller’s market takes strategy and a few clever tools. Buying a home should be fun, but so should pregnancy, right? Well… I can tell you that the process of having a baby and buying home have one thing in common, they are both worth the effort. Most of us live in a seller’s market. That simply means that there are more buyers than homes for sale and the laws of supply and demand kick you in the teeth if you’re the buyer. For every home on the market there are many times more buyers. So bidding on a home can get out of hand quickly. To win a bid you can offer more money than any other buyer, possibly using cash above an appraised price, or employ tools and strategies.
Four Effective Tools To Win the Offer
So, you found a home you want and you are about to put in an offer to purchase. As an agent representing a buyer, the very first step I take is to contact the listing agent. First of all it is important to put a real person’s name with the offer. People buy (and sell) to PEOPLE. It is less about that paperwork than you think. I recently sold a house and I had several offers, but felt best about the one whose agent called and introduced herself. She told me about her lovely clients and the strength of their offer. She also asked the magic question, “What do your clients want?” This is the question I always ask a listing agent if I am planning to put in an offer. It is a smart move. It gives you the advantage over other offers who have not bothered to ask the question.
In the past few months I have won houses because of this phone call. Here are the scenarios I encountered and the tools I used to win the bid:
There are already several full priced offers.
On a $259.000 home, I put in an escalator clause of $672. I said my buyer will net the seller $672 more than any other bid up to a max price on the home of $267,000 (which is the top price I believed the home would appraise for). We won the bid over a $672 increase to the seller! With an escalator clause the list agent must verify the highest bid, so you can’t pay any more than your escalator over the last highest bid.
The sellers are trying to move to Florida and have not found a new home yet.
I set the closing date for 60 days with an option to extend. This meant the seller did not risk having to move to a temporary home while they searched for a home to purchase. It also meant they could go to Florida to search full time. They found a home and we ended up closing in 30 days.
The sellers are elderly and are concerned about getting their personal property moved out and the house cleaned out.
For the elderly couple we put in an “AS IS” inspection contingency that states that we get to have an inspection (and back out of the deal if we are not happy with it) but if we find anything that needs to be repaired we will not ask the sellers to do anything. I also told the listing agent not to worry about cleaning the home, we would do it ourselves. The elderly sellers were able to relax and feel less overwhelmed.
Sellers already found a new home and are eager to close.
I set the fastest closing time my buyer’s lender could handle which was 30 days. Closings are typically 30-45 days from ratified contract, but in this market lenders are slammed. I knew we were using a reliable lender. Which brings me to our next subject.
No listing agent wants a transaction to fall out. So when we get multiple offers, it is not always the highest bidder that wins. What good does it do to accept a high offer and never make it to closing. The quality of the buyer is key. A good agent demonstrates the quality of the buyer verbally in the initial phone call, but backs it up with a strong pre approval letter from their lender. I personally have a list of lenders I will and will not work with. A strong buyer has a pre approval letter before they even look at homes. If you see a home you like before you are approved, the home will be long gone by the time you are ready to make an offer.
The strategy of home buying includes using the right tools to make an offer, but which home you select is also critical to your success.
Strategy #1 FUNK
In my experience, most home buyers want the flashy home that has recently been renovated or that appears to be in excellent condition. Homes with new flooring, new appliances, and fresh paint get all the attention. (if you are selling see my blog “How to Get Your House Ready for Sale: Five Simple, Low cost tips (https://www.lorijeanhomes.com/post/how-to-get-your-house-ready-for-sale-five-simple-low-cost-tips)
Photos caption: This house just needs an update
You will pay a premium for the flashy home with all the fluff for obvious reasons. The actual cost of floors, appliances and paint is not that great. Find a home that needs these items, pay less, win the house, and make the upgrades yourself. A home with outdated decor is a great way to go. You can also take it one step farther. I love a home for sale that is cluttered, has funky wall colors, and possibly even a bad odor. I know I can win it for my buyers and help them turn it into a great buy. Think of the funk as money in your pocket. You are going to take out the stinky old carpet and paint anyways.
Photo caption: This might be a great house, look past the mess
If you don’t have the imagination for this and simply cannot visualize the improvements, use logic. Focus on the location of the home, the architecture, number of bedrooms, square footage and other considerations on your wish list. Write the pros of a home that looks bad on paper and see them as facts vs fluff. Do not fall for new appliances and other shiny objects. Most of the time they are the cheapest on the market and will last six years if you’re lucky. Be prepared to buy your own new appliances, paint the house the colors of your choice and redo the floors exactly how you want them.
If you don’t have the cash, get the sellers to pay more of the closing costs by offering to pay that same amount more for the home. Now you keep your cash to fix up the house and you will be paying only a few dollars more on the mortgage each month or more likely, less because you are paying less for the house. You can also open low interest credit at your box store and pay it off with the monthly savings on a less costly home.
Strategy #2 DOM
Look for homes that have been on the market for a while. Days on market, DOM, can tell you a lot. Sometimes it is a perfectly good home that started overpriced. Overpricing a home turns it into a leper. Even if the price is reduced it stops getting any attention. Don’t follow the herd, go look at these homes that have been sitting a while. If it is still overpriced, make a fair market offer. If the sellers have already rejected fair market, they just might be getting the message and accept your offer. If not, go on to the next house.
Strategy #3 POOR MARKETING
Another reason a home can be on the market for too long is poor marketing. An agent takes the listing then does a lousy job on the write up and really blows the photos. They put one or two iphone snaps in the MLS or they put lots of iphone photos in the MLS. They seem to take photos of furniture or a light switch and generally don’t show what the house looks like. Everyone passes on the house. If it meets your price and location go see it. Don’t rely on the marketing. We have all purchased well marketed products that were disappointing, the reverse is also true.
Strategy #4 CAN’T GET IN TO SEE IT
Some houses are just tough to get into. Either the owners or tenants make it hard to see the house. Jump through their silly rules and go see the home. It is a small effort for a big pay-off. They will have less traffic and interest in their home.
Talk to your agent about the four tools to help your chances of winning the bid, but don’t forget to love funk. If you can bring yourself to see a home for what it could be and not what it is today, you can buy a home and end up sitting on equity from day one. Don’t follow the crowd, there are great homes sitting in no mans land because of poor marketing, silly showing barriers, odors, weird paint color, clutter, outdated decor, over-pricing, and any number of other objections to the sale.