How to win in multiple offers war?
Have you decided that it's better to put you monthly rent payments into your own equity than in landlord's pocket? Congratulations, you are right. But, it is the seller's market today, which means there are more buyers on the market who want to purchase the house than sellers willing to sell. With median 11 days on the market that one house spends in Washington state (as of March 2018) it is extremely important how you are prepared, because you want to be "the one" in dozens of other competitors competing for the same property.
In hot markets, where sellers dominate, it is not unusual to have many buyers competing for a single property. There are fewer homes on the market and as soon as one is listed for sale, there is army of potential buyers fighting for it.
This situation might scare you. Even your friends might tell you how rough the market is, that they are losing in multiple offers scenarios, especially if YOU lost in several attempts to get the house you liked.
Now, you realize how important is to be well prepared. Time and preparedness is crucial. Even though there are no guarantees that you will get any house in every scenario, you can certainly get ahead of the crowd and tell yourself you gave your maximum, so that you have nothing to regret for.
Let's see what you can do to prepare yourself for the battle.
STEPS YOU SHOULD FOLLOW TO MAXIMIZE YOUR CHANCES FOR SUCESS:
First of all, you need to get a pre-approval letter from your lender. I can't stress the importance of this step enough. Before you even decide that you might want to buy a property - GO FOR A PREAPPROVAL! With that letter in hand, you are showing a seller that you did your part and checked your finances. It also shows that you are serious buyer and not just some random visitor who liked their house. Sellers want to see preapproval letter attached with offer. It will also give you the idea of your maximum loan amount, meaning you will save a ton of time by not considering houses you cannot afford.
The more money you can put down, you are more stable purchaser in seller's eyes. Even though you can put as little as 1% or no money down, the more you have in the savings the stronger your position is. It's no wonder that in multiple offer scenarios almost always win cash offer, which against you cannot compete if you are buying with loan, but for every other loan offer your would be on top (with all other steps that follow).
Look for a little cheaper homes. You should look at least $50K priced homes below your pre-approval amount (if not $100K in some local markets). Set up with your real estate agent to send you homes with all your criteria but minus certain amount which will allow you to raise the amount in the event of competition up to your pre-approval amount. This gives you a good starting point. You will not be stressed to look at homes of your maximum reach and then eliminate your position for eventual price adjustments.
Doing pre-inspection is a must if you want to remove the Inspection contingency (Form 35) and get a better start. You want to know what you are buying but also if everything is ok, you want to be better positioned and having more chance to win the property, then as soon as home is listed for sale, the same day after work you should go and see it with your real estate broker. If you like it, schedule an inspection for tomorrow if possible, to possibly file an offer the same day. Sometimes, sellers perform their own inspection and upload it for public, together with receipts of performed repairs, and that can save you time if you want to rely on their own report. I would always suggest that you do your own inspection, if possible in the form of pre-inspection, but sometimes sellers do not permit pre-inspections, especially if they are still living in the house, due to inconvenience of too many people checking their home inside out.
Put a large eanest money. You need to have some cash for closing costs and down payment. Down payment portion goes in advance as a good faith deposit. It is going to be part of your down payment at closing, returned to you if the deal fals apart or forefeitured if you breach the deal. Ideally, sellers in this hot market want to see any amount from 1% to 3% of listing price. You don't have to be scared - this is your money and you will deposit it only in the event of offer acceptance, the next business day.
Some banks and lenders are willing to do pre-underwritting. What it means for you? That gives you the option to close sooner - approximately in three weeks. Sellers want to close as quickly as possible, and you will give them what they want with pre-underwritting.
Remove as much of contingencies as you feel comfortable. Some of them usually removed are appraisal contingency, inspection contingency, title contingency, to name some. But you should have coverage for it: pre-inspection or seller's inspection for removing inspection contingency, preliminary title ordered by seller to remove title contingency, etc.
Escalation clause. Now comes the fun part. What is escalation clause? #escalationclause is part of the Purchase and sale agreement allowing the buyer to compete in the event of #multipleoffers. You state that you will increase or "escalate" certain amount up to the maximum purchase price the buyer is willing to pay for the property. Use of this form is risky and requires utmost care and diligence. When you include escalation addendum in the offer, remember that it is binding on no one because you have not yet reached mutual acceptance. It does not become binding until the offer containing it is fully executed, the competing offer is provided, and mutual acceptance has occured. Until that time, the seller is free to negotiate with any buyer and may disclose the terms from your offer to other competing buyers. Seller may reject all of the offers and demand that all interested parties make their highest and best offers without the escalation provisions.
Personal letter to seller. Try to write a personal letter to seller with your information, what did you like their home, what would you do to maintain the home in the future - sellers want to hear that someone else love their home as they do and that you will take good care of it.
Usually, you put the offer to expire in a day or two, but if seller will review the offers on a certain date, you should put that date for offer to expire. But file the offer as soon as you can. Sometimes if seller receives an excellent offer, he don't have to wait. He has right to accept offer sooner than set up date, so don't wait until the last moment - or all your hard work may end up being late.
Even though you do all from the list above, there are no guarantees that you would get a home, but you will greatly increase your chances and above all, you will be able to tell yourself that you gave your best. It is unwritten rule that cash offers would almost always get a primat because sellers won't have anything with loan process. After that will come good and offers with excellent pre-approval letter, preferably underwritted.
Marina Zaric is real estate broker affiliated with North Pacific Properties. She resides with her husband and two kids in Seattle's eastside area. Marina enjoys working with first time home buyers, sellers and investors. She speaks fluently in serbian, montenegrian, bosnian and croatian, and intermediate in spanish.