This article was originally written during a hot seller’s market in 2017. Several years later, and it’s still a seller’s market. In fact, there are fewer homes on the market today than back in 2017. Low inventory is caused by numerous things, but the COVID-19 pandemic in 2020 has been a notable contributing factor. We thought it would be a good idea to update this article and offer any new insight or tips for buyers.
If you want to purchase a home in 2021 be warned — you’re playing by new rules. Seller’s rules that is. Low housing inventory and high demand have created a seller’s market, one that isn’t going away any time soon. However, these seven tips can increase your chances if you happen to find yourself in a bidding war on your dream home.
1. Let Go and Be Flexible
Be flexible. Having fewer demands creates a cleaner offer, resulting in a higher chance of getting the home.
Here are few things to consider:
- Price: If there are other offers, or you anticipate other offers, start with your top dollar bid.
- Closing costs: You should consider covering the closing costs for yourself or even the seller’s. More on this later.
- Dates: Many sellers have an ideal closing date in mind. Ask if the seller has a target date before drafting any offers. If the seller won’t give you a set date, try a date range. For example, May 2nd through May 26th with the seller’s choice on the actual date.
- Home inspections: Think about waiving a home inspection or doing it for informational purposes only. I’ll touch on this a bit more later in the article also.
- Radon Test: Consider waiving a radon test or offering to do it “for informational purposes only”. This will save the seller’s the cost of having to mitigate (around $1,000) if the test comes back high.
- Home Warranties: Sometimes buyer’s want a one-year home warranty. Our Purchase Agreements give the buyer’s the option to purchase one, ask for the sellers to purchase one or not include one altogether. They cost about $500, so I strongly advise not requesting one when competing. If a buyer really wants one, then purchasing it themselves is a good alternative approach.
I know as a buyer you want the best possible terms, but if you really want that house, be willing to let go of some things. While you might lose a battle on getting a term you want, you still may win the war and get the home.
2) Pay Market Value (or Higher)
The list price for a house is not the same as market value. Market value is the price at which something can be sold. It’s essentially the price that someone is willing to pay for something. If you fall in love with a home listed at $200,000 but you, as a buyer, would willingly pay $210,000, then do it! Odds are if you are willing to pay that price, so is someone else.
You might want to start low and negotiate; however, there often is no room for negotiation in a seller’s market. Placing a low offer on a home that has multiple offers might put your bid at the end of the list. Write an offer at what you believe is market value — something you’re willing and able to pay — and not what the listing agent or seller has it listed.
Many times sellers are moving because they either have or are purchasing another home. If they are required to sell their current home before closing on the next home, they may face a 1-3 day moving crunch. In these situations, many sellers would be thrilled with a post-occupancy agreement. During post-occupancy, buyers close on the house and let the sellers live there rent-free for a few days. This gives the sellers time to close on the next house and move out. As an added benefit, since there’s less of a rush, the sellers usually leave the house in better order and much cleaner.
4) Write a “Love Letter” to the Sellers
When all offers are in, it’s just names on a paper and a dollar amount to the sellers. So, how can you make your offer stand out, especially if the competing offers are close? Enter the love letter. This is a handwritten letter to the sellers talking about you and your family. While money talks and usually the highest bidder wins, love letters may add a personal touch that makes you more memorable.
I’ve seen sellers over the years pick a lower offer because of a love letter. It happens. I’d suggest getting personal and make sure you tell the sellers how much you love their house. If you want to add a few family photos, this now adds a face to the name. It just might tip the scale.
5) Paying Closing Costs
This one may sound crazy, but hear me out. Consider paying the closing costs for yourself or even some of the seller’s.
Crazy, I know, but this is why it works. In the past decade, buyers typically ask sellers to pay for some or all their closing costs, taxes and insurances. Paying the seller’s closing cost is almost completely unheard of, even to some of the most experienced Realtors. This is a rare thing to see, which is why it works. Paying all or some of the seller’s closing costs increases the seller’s net proceeds without having to raise the price of the home. This can potentially avoid appraisal issues down the line and keeps a few of the other costs down for the sellers as many of the seller’s expenses are based on a percentage of the purchase price. Just make sure you have room in your budget for this option.
6) Waive the Home Inspection
Waiving a home inspection can be risky. It is only recommend if:
- You want to purchase a home that is newer and/or appears to be in good shape;
- The buyer is handy and understands basic construction;
- Or, if the buyer has the financial ability to fix items or problems they discover after purchasing the home.
It’s best practice to thoroughly look over the home if you are considering waiving a home inspection. If you’ve looked over the home and things appear in great shape, then consider buying the home “as is, where is”. Inspections and repairs are one of the biggest stressors for home sellers. Eliminating this from an offer is one of the best ways to set yourself up for a winning offer.
What if you aren’t comfortable waiving the inspection? Do a home inspection, but in your offer state two things: that it’s for “Informational purposes” only, and that you are purchasing the home “as is, where is and no repairs to be made by the sellers”. This lets you see if the home has any major or deal-breaking issues. It allows you the right to buy the home in its current condition or walk away if it’s much worse than you anticipated, so you’re not locked into a money pit. This option is not quite as appealing to sellers as waiving it altogether, but it’s still better than the standard inspection process.
This can also be used for the radon test. You can get the test but for informational purposes only and not require the seller to mitigate for radon if the test comes back high.
7) Escalation Clause
Last, but not least, is the escalation clause. In an escalation clause, you offer a specific amount over any other offers. The advantage here is you should be able to have a higher offer price than other buyers but save yourself from paying more than needed to purchase the home. Consider this scenario:
The seller lists the house at $350,000. The buyer offers $350,000 with an escalation clause saying the buyer will pay $2,000 over any other net offers, with a max purchase amount not to exceed $360,000. In this scenario, if another offer came in at $355,000, then my client’s offer would beat theirs by $2,000, so the purchase price would be $357,000. Furthermore, since the buyer was willing to pay up to $360,000, the escalation clause caused a $3,000 savings.
While you are paying more than the next buyer, if you really love the home it’s worth the extra money.
One thing to keep in mind about escalation clauses is that they are common. If there are several offers already on the home, odds are high that another buyer is doing this as well. Too many escalation clauses can also confuse a seller or and inexperienced agent.
Buying a home in a seller’s market can be tough, but these tips and tricks can make it easier. Work with an agent to determine the best course of action. The agents on our team are experienced in dealing with competitive offers in a seller’s market and are happy to answer any questions. Contact us today to see how you can get a leg up on the competition on your dream home.