Thinking of buying a home?
Unfortunately, so is everyone else. Start off on the premise that getting your purchase offer approved will be a challenge.
Utah has been a “seller’s market” for a few years now, and the competition is fierce. Simply go on www.utahrealestate.com and keep track of how fast properties are going under contract – it’s usually a matter of 48h or so. Bid wars are very common, and buyers that are not prepared will lose out.
Take a little time to prepare. It can get overwhelming if you think about all the details, so I’ll break down the most information into 3 major steps:
- Figure Out Your Financing – tackle issues early in the process
- Carefully Decide On A Real Estate Agent
- Make Your Purchase Offer Stand Out
Step 1: Get Pre-Qualified. Even Better, Get Pre-Approved
The term “Pre-Approval” seems to be loosely used in the mortgage and real estate industry. But unless your loan application has been through underwriting, your loan is Pre-Qualified, not Pre-Approved.
A Pre-Qualification is a mortgage loan officer’s opinion that you qualify based on your credit profile, income and assets. Hopefully they also run your loan scenario through one of the automated underwriting systems – it will point out any potential deal breakers.
A Pre-Approval is the safer choice because an underwriter will look at your entire file. You can do it based on a “to be determined” property address (meaning it’s not tied to a specific property address). This can carry a lot of weight with sellers needing to sell their current home first before qualifying for a new home purchase.
If you are Pre-Approved, make sure your real estate agent uses this to your benefit, and absolutely include it in your cover letter. It won’t carry the weight it should if agents and sellers don’t realize the huge benefits – very low risk of the loan not going through, and faster closings.
Having a mortgage loan officer that can verify a Pre-Approval or Pre-Qualification over the weekend is also quite handy. Most of my borrowers make purchase offers over the weekend, and listing agents will occasionally call me to verify the details. I always answer (or call them back as soon as possible) so I can both reassure them, and build a nice case for you – my borrower. If your credit score is excellent, you can bet I’ll mention it. If your down payment is significant, you can bet I’ll drop that in the conversation as well.
It may seems like a small detail, but listing agents don’t call me unless the sellers are trying to decide, and your offer is in their top 3. Instilling confidence in your financing ability might be exactly what’s needed to tip the scale in your favor, and get your purchase offer accepted.
Get your financing in order, and work with a local mortgage loan officer.
Try to search for homes below your maximum budget, so that you have room to increase your purchase offer if needed. There’s nothing worse than falling in love with a home but not being able to compete on the price. OK, there are worse things out there, but I don’t want to be a downer.
Insider Tip: Research your mortgage lender a bit before deciding on them. Don’t use them if the company has a lot of bad reviews, or disciplinary actions on the NMLS Consumer Access. Experienced reals estate agents have seen how various mortgage companies perform, and they know that the biggest issues come up with out of state “too-big-to-care” loan mills. Listing agents will warn the sellers if they personally had a bad experience, and your offer might be dismissed for this sole reason. Local is best, and easier to hold accountable.
Step 2: Choose Your Real Estate Agent Wisely
Buyer’s agents have their work cut out for them in this market. Most people look at multiple homes, and make a few offers before getting one accepted.
I’ve noticed that some buyer’s agents get homes under contract a lot faster than others. And while some borrowers can definitely be pickier and harder to please, the agent will actively make a difference each time.
Here are some qualities you should look for in your real estate agent:
- Experience
- Good Reputation
- Proactiveness
EXPERIENCE
I remember looking at homes with a friend of mine a couple of years ago, and the market was about the same as now (crazy). Another potential buyer and his agent were there, filling out his offer in front of us. Ok, not directly in front of us. And I might have been eavesdropping just a little.
Consider that my friend was planning on offering $5,000 over asking price, and no seller paid closing costs. This other potential buyer was filling in an offer for asking price, $5,000 seller paid closing costs and an extended home warranty. His agent was just nodding and confirming with an optimistic look on his face.
That particular home went for $10,000 over asking price.
An experienced agent will know the market, and will actively advise you if your offer is not strong enough – perhaps even argue with you a bit if you’re being stubborned. Do you want to be right, or do you want the home? Pick one.
GOOD REPUTATION
You may think your buyer’s agent and the seller’s agent are at each other’s throats negotiating. Behind the scenes, they are actually very courteous and helpful with each other -most of the time that is. The whole idea is to get to an agreement that benefits both sides, not to make enemies. After all, they’ve each been on both sides of the table at some point in their real estate careers.
Unfortunately, there are a number of agents that have built a reputation based on misleading practices and bullying other agents. This kind of reputation travels pretty fast in the real estate world, and it will also reflect on your offer. Don’t hire a-holes to represent you – you might be perceived as one.
PROACTIVNESS
My life philosophy is that the squeaky wheel gets the grease. You will never get anywhere if you never stand out, and you play strictly by the rules.
I have two very good examples of this:
1.Perfect home gets listed for sale on Tuesday, but won’t accept offers until Saturday, at the official open house. Proactive buyer’s agent knows that this is the perfect setup for a bid war, and her clients will likely lose out. She calls the listing agent, and presents her with an offer the sellers can’t refuse ($10,000 over asking price, no seller paid closing costs, really cute cover letter from her buyers). She also attaches a deadline of 24h-48h maximum for the response.
This is not guaranteed to work but guess what. This time the offer was accepted, financing went smooth and everyone was happy. Win win. Except for the buyers waiting around for the open house.
2. House in a great location comes up for sale. There’s a bid war, and the borrower misses out. But he is absolutely in love with the neighborhood, and his agent is determined to find him a home. She sends letters to all the neighbors telling them about her client, and asking if they would be willing to sell. Turns out one family owning a second home there was just going through a divorce, and the timing was perfect! That home never got listed on the MLS (www.utahrealestate.com), and the buyer got an amazing deal on the purchase price, without any competition.
There is more to getting your offer approved in a seller’s market than simply throwing as much money as you can at a property. Make sure your agent goes to bat for you, and once you’ve made your choice, be sure to heed his/her advice. It may be your first rodeo, but it won’t be theirs.
Step 3: Make Your Purchase Offer Stand Out
Again, I’m not talking about offering thousands over the asking price.
Here are some ideas based on my experience, as well as my research of online articles and comments. The comments are always a gold mine.
MAKE YOUR BEST OFFER UP FRONT
This may sound counterintuitive, but hear me out.
It’s a seller’s market. You know that there will be other buyers, lots of other buyers. You know that the property will go for over asking price, they almost always do.
What you don’t know is that not all sellers care about triggering a bid war. A lot of them would rather have a solid buyer, that promises to love and take care of the home. Be that solid buyer, and make the seller’s choice a no-brainer. You’ll end up offering that anyway, won’t you? Why not use this opportunity to stand out from the 20 or so offers they’ll get in the first day?
*Alway have your real estate agent check comparable home values. Don’t put yourself in the position where you offer too much over asking price, hoping that the appraisal will come in lower so you can re-negotiate the purchase price. The sellers don’t always lower the price, especially when they have a backup offer or two. The second buyer will have better leverage, but you’ll likely just end up wasting money on the home inspection and appraisal.
SHOW OFF YOUR LARGE DOWN PAYMENT
How your financing looks like in the end depends solely on you. But consider providing the seller with proof of your available funds to close (such as a short letter from your bank). Include this with the cover letter I’ll talk about later in this article. If you’re not comfortable sharing that information, your mortgage loan officer can verify the funds and include them on the Pre-Qualification letter.
Higher down payment borrowers are usually guaranteed to have smoother purchase transactions, so sellers will tend to give them preference.
LIMIT CONTINGENCIES
Unless you are an all-cash buyer, it’s a bad idea to waive contingencies (such as due diligence, financing and appraisal). But that doesn’t mean you can’t sweeten your offer a bit.
Shortening the Due Diligence deadline for example. Make sure you check the implications of this strategy with your real estate agent.
The home inspection is usually the biggest concern. If this is the case for you, know that a home inspector generally takes 2-3 days to go out and perform an inspection, and results are usually available the same day. Add a few days to present any requests for repairs to the sellers, and try to keep your due diligence between 7-10 days max.
If you’re already Pre-Approved, you’ve shaved at least a week off your loan process. Odds are you can be at the settlement table in 3 weeks or less, so use it as an advantage, especially if you find out that the sellers are in a hurry to close.
DON’T ASK FOR CLOSING COSTS
There are 3 ways you can pay for your loan closing costs:
- Seller credit
- Lender credit (in exchange for a higher interest rate)
- Bringing $$ to the closing table (in addition to your required down payment).
If you really want to be competitive, don’t ask for seller paid closing costs. It’s not ideal, but it can be a deal breaker for your purchase offer, because closing costs lower the seller’s bottom line.
INCREASE YOUR EARNEST MONEY
Your earnest money is well protected by the Utah Standard Purchase Contract, but consider putting a bit more on the line if you’re serious about a property.
The most common earnest money deposit is $1,000 for the average $250,000 home, so consider increasing yours to $2,500 if you can swing it. Don’t worry, if this is a USDA or VA loan with 100% financing, you’ll get it back at closing.
DON’T ASK FOR PERSONAL PROPERTY
It’s hard enough having strangers come in and out of your home, often criticizing various things out loud. Now imagine them also demanding your personal possessions. Like that beautiful vase on top of the fireplace, which is actually your beloved Grandmother’s Cremation Urn.
Various things in a house can have emotional value for their owners. You can offer to buy furnishings in order to make the seller’s move easier, but don’t demand personal property. Be mindful and respectful. Furnishings should always be a separate transaction, with its own bill of sale.
WRITE A COVER LETTER
This is an absolute must in my opinion.
Your cover letter should be personalized, but don’t just mindlessly rant on about yourself and your wants and needs. Focus on what the seller might want to see on there. It should be a good balance of touching an emotional cord, while providing practical information on why you are a good choice.
Have your agent do a little research either by asking the listing agent questions, or by deducting things from the available public records. For example, how long the seller has owned the property can be a good indicator of his/her attachment to it.
With your purchase offer, attach a nice photograph of your family if possible. Maybe even a business card. Don’t be afraid to be unconventional and offer a personal service if you’re in a position to do so.
One pizza place owner offered the seller of his house free pizza for life. Not everyone owns a pizzeria of course, but stand out by offering something that the seller might not necessarily expect (but will appreciate).
Sometimes no matter what you do, you will still miss out on what seems like the perfect home.
While it may feel like a temporary tragedy, know that you can absolutely trust the hedonic adaptation. Keep looking, keep trying, and you will eventually find what you need. Most people end up more than grateful with how things turned out, and the home they end up with.
If you really love the home but your offer wasn’t accepted, put a backup offer on the property.
Final thoughts – ask your agent if they are in the habit of using an Escalation Clause. This is a very handy tool in multiple bid situation, and for some reason, very few use it.
Roll up your sleeves and get to work. It’s time to buy a home!
For any questions, feel free to email me at [email protected] or apply online to get started on a Pre-Qualification.
