The Formula for Success in Purchasing a Home in this Crazy Real Estate Market

The current Real Estate Market scene has created a tremendous demand that is causing every home to be a competitive bidding war for Buyers seeking to buy homes. In a Seller’s market it is commonly difficult for Buyers to have any edge in negotiations and this current market is not the exception.

Prices continue to rise and the number of buyers continue to flood the market causing this high level of demand. So, the question is, what strategies are the most successful in getting an offer accepted and purchasing a home in today’s market? I have gathered some strategies and trends of what I am seeing is working on getting offers accepted and a process to prepare for when entering the market.

First, I will start with a process used for preparing a buyer to enter the market and positioning them for success in purchasing a home.

• FINANCIAL SUCCESS PLANNING TO PURCHASE

The very first step is meeting with a Mortgage professional to obtain a pre-approval on a mortgage loan and to obtain the estimated amount of cash needed not only to qualify for the loan but also to successfully get your offer accepted. This first step will set realistic expectations of what you will need and what it will take to submit competitive offers and obtain a loan that fits your budget.

For example, if your budget allows for you to comfortably pay $3,500 per month towards a house payment then the Mortgage professional will assist you by providing what type of down payment you will need to have to afford a particular price range. This down payment combined with the approximate amount of closing costs required to pay to purchase the home is only part of the cash needed to successfully compete in this market. You will also need to take into account additional cash needed to have leverage in submitting a competitive offer.

• PREPARE TO ENTER THE CURRENT MARKET

That leads us to the next step…Once you have a clear idea of what you need to obtain a home loan within your budget, it is time to prepare you to enter the current Real Estate Market. Setting a realistic expectation is the key. Knowing what it will take to get your offer accepted is an important factor when entering the current Real Estate Market or it could cause for a very frustrating and stressful experience that leads you on a path to nowhere.

• THE SEARCH

When searching for homes to consider, it is important to search using a criteria that fits all your needs in a home. Location, Bedroom Count, Bathroom Count, Size of home, Size of BackYard, 1-Story or 2-Story, Single Family Home or Townhome, Etc. These are all important, however, one major criteria we are missing is the price. In this market, it is important that you search under your max approval amount you received from the Mortgage Professional. On average, $20,000-$30,000 under your max approval amount is a good start. This will save you a lot of time and frustration in the long run so that you avoid viewing homes that you will eventually get outbid on when submitting offers.

• SHOPPING

Everyone loves to shop right??? This part may be the most exciting and enjoyable part of the home purchase process. However, it could also become the most frustrating part if not managed correctly. Once homes are selected from your search it is now time to coordinate the logistics of setting appointments to go view those homes. Having a time efficient tour schedule of the homes is important as it saves everyone valuable time and makes for a much more enjoyable experience. Also, once viewing the homes that were selected, it is now time to determine which homes will make the cut. On the home that makes the cut it is important that your Real Estate Agent performs a market analysis on each home and also connects with the Seller’s agent to obtain any important and relative information to consider when submitting an offer. The Market Analysis provides you with an estimated home value of each of the homes which gives you a starting point on what offer price you should consider to stay competitive with the other offers and obtaining important information from the Seller’s agent will give you a starting point on what terms should be considered when submitting your offer.

• SUBMITTING THE OFFER

Now it is time to submit your offer. This part may feel intimidating, but remember, trusting your Real Estate Agent to guide you through this process is imperative. This is where the experience of your Real Estate Agent makes all the difference. Here is when you gather all the data your Real Estate Agent obtained from the market analysis and the conversations with the Seller’s Agent and determine what would be a competitive initial offer to submit on the homes that made the final cut after shopping. During this process, taking the approximate value of the home is important so that you can determine what price range to consider offering. In the case of this current market, it is also important to know what other offers you may be competing against. Now, knowing the price and terms may not always be available to you but having as much of this information up front is key. This way, you can stay as competitive as possible when submitting your offer. You may also just decide not to invest any time submitting an offer on a particular home if the offers you are competing against are way out of your range.

• PRICE AND TERMS

When submitting an offer in this current market the two most important factors are Price and Terms. The price of the offer needs to be the driving force and, of course, within budget. On average, offer prices are exceeding the asking price by $30,000-$40,000 in most areas. If your Agent is able to find out what the highest priced offer is that has been submitted, that will give you a guide on where to start. The terms of the offer are the difference maker in this market. Knowing the needs of the Seller is an important factor in determining what terms to include. Does the Seller need time to transition into their new home? Does the Seller need to Lease Back after closing escrow? Is the Seller in a hurry to close? Most of these questions can be answered when your Agent talks to the Seller’s Agent. Providing the shortest time frames of the escrow process usually prevails. Anything 30 Days or under is what should be considered for closing escrow. Then the infamous contingencies and contingency periods. In many cases, this current market is forcing Buyers to remove some if not all their contingencies to get their offer accepted. It is important to know all the risks involved in removing those contingencies. In most cases, as long as you are in a financial position to remove these contingencies or offering to pay additional cash above the appraised value of the home it will give you a much higher probability of getting your offer accepted.

• SHOULD YOU RISK IT?

As mentioned, removal of contingencies or the removal of your ability to cancel escrow and receive a refund of your earnest money deposit, increases your chances of getting your offer accepted because it reduces the barriers and risks for the Seller and makes your offer much more attractive. For this, there is the sacrifice of risks involved in doing so. One of the contingencies that exist is the Buyer’s right to cancel due to physical condition of the home or any other concern of the home found by inspections and research done on the home. By removing this Contingency, you will need to be prepared to purchase the home as is and inherit any potential issues the home may have. TIP: Newer homes and Condos or Townhomes that are maintained by an HOA are less risky regarding physical condition. The other contingency to consider is the Appraisal Contingency. This is the right to cancel based on the Appraised Value of the home. By removing this contingency, you must be prepared to pay the difference out of pocket between the Appraised value and the agreed upon purchase price. By completing a Market Analysis on the home up-front gives you a more clear idea of how much that amount may be and as long as you are in a financial position to pay the difference it is a term to consider as it is one of the most powerful terms when winning a bidding war. Lastly, the Loan Contingency is your protection to cancel on the inability to obtain a loan. When removing this contingency, you are taking the risk that if at the end of the process you are unable to obtain a home loan for any reason you may lose your deposit. As long as you do your due diligence up front when working with the Mortgage Professional in assuring that all the information needed to pre approve you for a loan is submitted and staying within budget this term is the least risky but still one to consider. Again, the more you minimize or remove or the higher risk you take with these contingencies the better chances you will have in getting your offer accepted.

• INCREASE YOUR CHANCES TO WIN

In closing, the goal during this process is what to do to increase the chances as much as possible to get your offer accepted. Again, having clear expectations is important here. Having the mindset that it may take several attempts until the stars finally align and you get your offer accepted is crucial. Some key points to increase your chances of making it happen sooner than later are; First, be as flexible as possible with your home search criteria. The more options you have to search from and put offers in the better chances to get an offer accepted sooner than later. Second, willingness to invest additional cash into the purchase above and beyond your down payment and closing costs will allow you the leverage to compete against other offers. Lastly, be ready to take some risk with the terms of the offers you send. The mindset of giving more than taking when submitting offers will put you ahead of the pack of other Buyers submitting offers competing with yours. In summary, remember that not only are you purchasing a property that you will call home you are also making an investment and it may be one of the best investments you make in your lifetime. So, putting in some extra cash and taking some risks will eventually translate into having a home for you and your family and an investment to have financial leverage for your future. Happy house hunting!!!!