With a shortage of inventory, sellers are in the driver’s seat when it comes to selling their home. Assuming the house is priced anywhere in the right ball-park, they don’t have to worry about negotiating a lower price with buyer, paying any of the buyer’s closing costs, paying for a home warranty in many cases, or even having to deal with appraisal contingencies. Buyers, on the other hand, have to deal with multiple offers on about every home they are interested in (unless they are looking at multi-million dollar homes) and the disappointment that comes with losing out time and again to other buyers whose offer was more attractive to the seller for some reason. Here are a few ideas that can help give a buyer the advantage.
1) Don’t make your offer contingent on the sale of your home:
This sounds reasonable and it’s easy to understand why a seller would prefer an offer that doesn’t have this contingency but if you need the money from the sale of your home for the down payment, how can you get it without selling your home? The answer is a HELOC (Home Equity Line of Credit). A HELOC that loans up to 90% of the value of your home will allow you to access most of the equity in your home without having to sell the home. By not having to rush the sale of your home, you may be able to use some of the money to put a little shine on your house and sell it at a premium and get more than you otherwise would have. The challenge with this option is being able to qualify for the mortgage on the new house while keeping the mortgage on your current home and adding a HELOC. With this constraint in mind this solution won’t be for everyone, but it is available for those who qualify.
2) Find Out the Seller’s Hot Buttons:
Every situation is different and sometimes it’s not always about price. I financed a loan for a client to purchase a home and his bid wasn’t the highest bid. It was $2,000 lower than the highest bid but he was willing to let the seller rent the home back from him for a couple of months while the seller’s new construction home was being completed. My client found out about this because his Realtor contacted the listing agent to find out if the seller had any special needs. As it turns out, his agent was the only one who did this and the sellers were very touched by the gesture.
3) Take Advantage of An Escalation Clause:
This is a pretty common practice so buyers who don’t do it may be at a disadvantage from the start. Each situation is different so be sure to consult with your Realtor. The typical escalation clause calls for an automatic increase in a buyer’s bid to a specific amount over the highest bid up to a maximum price. For instance, if a home is listed for $500,000, a buyer may offer $505,000 with an escalation clause of $2,000 higher than the highest bid up to a maximum of $520,000. A friend of mine used that to his advantage by adding one caveat: if the highest bid exceeded his maximum, he asked that the listing agent call him with the amount of the highest bid to give him one final opportunity. The agent called to let him know that the highest bid exceeded his maximum by $1,000 – he decided that based on the time he and his family would likely be in the home that paying a few thousand more to get the home they really wanted was worth it.
4) Write a “Why” Letter:
Some people may think this is corny or a waste of time but if you can put a little emotion into it, I believe most sellers will favor a buyer who does this (as long as the offer is competitive) over one who doesn’t. Most sellers have loved their home and want to sell it to someone who will love it just as much as they did. Talking about personal things such as the schools it is zoned for are the ones you want your kids to go to or your kids friends live in the neighborhood or close by, or how you grew up in a similar home/neighborhood, the downstairs bedroom with the kitchenette will make the perfect place for your aging parents to live, etc. will tug at the heartstrings of a seller.
5) Have Your Loan Officer Call the Listing Agent:
I have done this numerous times over my career and the listing agents always love it. On this call the LO should assure/re-assure the listing agent how strong the buyer is and that there shouldn’t be anything to delay the closing. I always tell them that I will update them at every major milestone during the loan process – your loan officer shouldn’t mind this because it is a win for the him as well because it shows the listing agent that he goes above and beyond the normal expectations of his job description and, assuming he keeps his word, it shows that he can be trusted to do what he says he is going to do.
BONUS Strategy:
A larger earnest money deposit is better than a smaller one. More importantly, if you are confident that your loan will close, offer to release some of your earnest money early so that the sellers have money for moving or doing some repair work on their home, if needed.
We all know that the housing market is cyclical and there will be a time where there is more supply than demand giving buyers the upper hand. Regardless of the market, it is always important to have the best professionals working for you on the most important transaction of your life. Feel free to call me at 702-812-1214 to discuss the things that I do that the average loan officer doesn’t.
