Over the past few years, the real estate market experienced a record-breaking inventory shortage that led to skyrocketing home prices and extremely short times on the market. In 2020, homes were on the market for an average of only 25 days before going under contract. In April 2021, 47% of homes were on the market for as little as a week before going pending. In addition, 24% of sellers received four or more offers on their homes in 2021.
While rising interest rates may have cooled the housing market in some areas, in others, it remains highly competitive. As of late January 2023, bidding wars had returned to several key markets including San Jose, California; Seattle; Richmond, Virginia; and central Florida. Other cities, such as Charlotte, North Carolina; Cleveland; Pittsburgh; Dallas; and Nashville, Tennesse, have been deemed 2023’s hottest housing markets.
In these active markets, it’s all too common to find your dream home, put in a fair offer, and lose out to another buyer. When a seller is presented with multiple offers, it pays to be the most attractive — but what can you do to make yourself more competitive? Start with these tips.
1. Get Pre-Qualified for Your Mortgage
There are several excellent reasons to get pre-qualified for your mortgage before you start searching for a home. First, it gives you a clear picture of what you can afford to spend, what size of a down payment you’ll need, and (roughly) what your monthly payment will be.
Having a pre-qualification letter also shows sellers that you are serious. This may alleviate their concern that the deal could fall through if you’re unable to get financing. In today’s market, many sellers won’t even consider an offer without a pre-qualification letter unless the buyer is making an all-cash offer.
2. Understand Exactly What You’re Looking For
When homes are selling fast, you won’t have time to ponder the purchase for long. Before you start your home search, get super clear on your non-negotiable “needs.” Separate these from your “wants,” which are features that you would like to have but are willing to compromise on. This will help you quickly decide whether a home meets your minimum requirements so you can act fast.
3. Find a Great Agent
Having a great agent can really make a difference. Not only can your agent help you find the right homes quickly, but they’ll also be able to help you craft a strong offer that is likely to persuade the seller to choose you.
Your agent works as your advocate and will help you navigate the entire process with ease. Many also have personal relationships with most of the area’s listing agents, which could help you understand exactly what the seller is looking for.
4. Make an Aggressive Offer
In 2021, 29% of homes sold for higher than the asking price. If you really love the home you’ve found, you may consider offering more than the seller is asking for. At a minimum, you’ll want to avoid offering less than the list price, as this will almost guarantee that you’ll lose out in a multi-offer situation.
Your real estate agent can provide guidance regarding how much to offer. However, it's also important to keep your budget in mind. Beware of getting emotionally involved, as this is when buyers tend to offer more than they can reasonably afford.
5. Put Down a Competitive Earnest Money Deposit
Another way to strengthen your offer is to provide an earnest money deposit (EMD) that is higher than the required minimum. The EMD is a deposit you put down when you sign your purchase agreement. As long as you don’t back out of the purchase contract, these funds will be applied to the home’s purchase price.
A standard EMD is between 1% and 5% of the contract price. However, you may decide to double or even triple this amount. This can make your offer more attractive to sellers since they know you have a lot to lose if you decide to walk away.
6. Make a Large Down Payment
By making a large down payment, you’re showing the seller that you can afford the home and that your financing is likely solid. Since many sellers are primarily concerned about choosing a buyer who won’t fall through, making a big down payment can help you send a message that you’re serious and ready to close the deal.
7. Accommodate the Seller’s Needs
It’s common for sellers to have a closing timeline in mind, whether they want to close quickly for a move or wait a while so they can find a new home or finish out the school year. Finding out what the seller needs and adding these concessions to your offer can help you stand out.
It May Be a Bumpy Ride – But It’s Worth It!
Buying a home in today’s real estate market may be a bit of a bumpy ride. Even with a well-crafted offer, there’s a chance that you won’t be able to buy the first home you choose. Remember that losing out on a home is sometimes a part of the process. Try not to get frustrated, remain patient, and continue making offers until you finally get your hands on a home you love.
