Are you looking to buy a home in the current seller's market? We'd wish you good luck, but making a standout offer on a home requires more preparation than luck.
To uncover successful home buying tactics in a competitive market, the brokerage website Redfin analyzed approximately 14,000 home purchase offers from 2016 to 2017 where competing bids were involved. The highest bid doesn't always win – it can be the offer that makes the most overall impact or gives the seller greater confidence that the deal will close.
Consider these six effective tips from the Redfin study. They may put your offer over the top.
1. Write a Letter – A personal touch can go a long way. Write a cover letter with your offer explaining why you love the home and how you will take care of it. Do you love the layout, the landscaping, or the neighborhood? Are your children looking forward to their new home and school district? Let the buyer know.
A cover letter can establish a powerful emotional connection with the seller and increase the odds of a successful offer by 52.2%, according to the study.
2. Waive Financial Contingencies – Many homebuyers are financially challenged enough to require a financial contingency – ranging from refundable deposits to making the entire deal contingent on the sale of their own home. Removing financial contingencies gives the seller greater confidence that you will make good on your purchase offer.
According to Redfin, waiving financial contingencies increases your offer's odds of success by just under 58%. In the most competitive markets, this may be the entry requirement to put in a serious bid.
3. Make an All-Cash Offer – It's the ultimate waiving of financial contingencies – no financing at all. Few people can afford this tactic, but if you can, Redfin estimates that your odds of a successful bid are almost doubled. In the upper 10% of the price range, an all-cash offer is over four times more likely to succeed.
4. Escalation Clause – An escalation clause will automatically increase your bid up to a pre-established limit in case somebody else submits a bid higher than your original offer. You can extend your buying power with reasonable risk – assuming you have correctly calculated how much extra you can afford to pay.
5. Waive Inspection Contingency – By waiving the inspection contingency, you won't be able to use the results of the inspection to cancel the deal or bargain for a better price. However, that's a risk you may have to take to place your offer above others.
6. Pay for A Pre-Inspection – By commissioning your own inspection before submitting an offer, you will show the buyer that you are serious. In addition, both parties can be confident that no surprise will scuttle the deal. According to the study, almost one-third of home buying offers included either an inspection contingency waiver or a pre-inspection.
All of these strategies may help you close the deal, but they will only be effective if you have done due diligence on your local market and are honest about your financial situation. "Do not get sucked into a bidding war," advises Jordan Goodman, the personal finance expert and author known as "America's Money Answers Man". "Get something you can afford and know in advance what that maximum is going to be."
Check your local market for recent trends and choose a reasonably priced home. You'll have financial latitude to use some of these tactics and the insight to know which ones will work.
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