You've been secretly saving, bingeing on house hunting shows, and spending your free time searching listings online and finally, you are ready to start actually looking for your first house. Congrats! Don't go celebrating too soon though because in today's seller's market, the hard part is still ahead of you.
Competition in the real estate market is fierce right now, interest rates are low, inventory is tight, and countless qualified, anxious house hunters are in your market, repeatedly submitting offers but losing to a bidding war or a cash buyer. According to the 2015 National Association of Realtors® Profile of Home Buyers and Sellers, the typical home sold was only on the market for 4 weeks and sold for 98% of the listing price. For reference, we consider anything shorter than 3 months on the market to be a seller's market. Things are hot.
Right now you may be feeling frustrated but before you navigate away from this page to cruise Craigslist for apartment rentals, hear me out. Buying a home without cash and without overspending is absolutely possible, even in today's market. It just takes a bit more strategy and planning than it has in the past.
Get organized before you start house hunting:
When you do find the house, you will need to act fast and submit an organized, strong offer immediately. To be able to do this, you need to get all of your ducks in a row ahead of time.
It starts with the team:
Find a full-time, experienced real estate agent who you trust. The agent should do the majority of his or her business in the town and price point you are searching in. (Check out our tips on finding the right agent.)
Ask your agent for a few of their preferred mortgage lenders. Agents gravitate towards lenders who are easy to work with and good at their jobs. Who you use will impact the seller's confidence in your ability to get funding and is a vital component that many buyers overlook. Meet with at least three lenders and pick one that feels like the right fit, and of course, has a good rate.
Pre-qualified, pre-approved, or pre-underwritten:
These three things are all different and might be the reason you miss out on the home of your dreams. Sellers need to have confidence in your financial situation and your ability to actually get the loan. Submitting any offer with only a pre-qualified letter will be a waste of everyone's time. Take the time now to get the paperwork out of the way and get pre-approved at the least. To compete with cash buyers, consider going one step further and have your lender pre-underwrite your loan.
Know the market:
Have your agent pull the data from the last 3-6 months for homes similar to what you are looking for. It should be narrowed to your price point, number of bedrooms and bathrooms, approximate square footage, and neighborhood.
The most important statistic to consider is sales price vs. the list price. Knowing this number ahead of time will help you make appropriate, strong offers and also save you time. For example, if homes in your area are consistently selling for 95% of their list price and you find a home that your agent assesses to be accurately priced. Offering 85-90% of the price will probably get you no where. Also, it allows you to eliminate homes that would still be out of your budget at 95% of their list price.
Writing the offer:
In the event of a bidding war, you want the seller and the seller's agent to want to work with your team. The offer and its delivery is your time to give them confidence that an escrow with you will go smoothly.
Have the agents connect ahead of the offer:
Your real estate agent should call the listing agent ahead of time to mention that you loved the house and are writing an offer. They should also discuss the seller's needs. Knowing the seller's motivation could help you stand out. Say the seller is worried about finding their next house to buy before they have to move out of this one. You could write a generous lease-back into the offer and appeal to their desire to not have to move twice.
Write a strong offer from the start:
Make your first offer count. A seller's market isn't the time to lowball and insult sellers. You may not even get a counter offer. You've done your homework and you know the market. Come in with your best, or at least close to your best, offer. Also, decide what your max is before getting involved in a bidding war.Deciding ahead of time will help you keep emotions out of the decision and may prevent buyer's remorse for overpaying.
Consider shorter contingencies:
Work closely with your team to determine the appropriate contingencies but in general, pre-underwriting may open up the possibility to shorten the loan contingency. A speedy agent can pull of a shorter inspection contingency. Just don't overdo it and start waiving contingencies just to get your offer accepted. No single house is worth the risks associated with not having a home inspection.
Write a personal letter to the sellers.
This one works more often than you'd think. Homeowners, especially ones who have lived in the house for a long time, have a strong emotional attachment to it. Write a letter to them detailing the things you loved about their house, how you look forward to maintaining the blue hydrangea bushes and appreciate their design choices.
Submitting the actual offer:
Many agents submit offers by sending an email with a bunch of attachments without even naming each attachment after what they are. Have your agent send one email with a summary of the terms in the body of the email and merge all of the necessary files into one attachment. Details matter.
Have your lender call the listing agent:
If it complies with your state's regulations, consider having your lender follow up with the listing agent within a few hours of submitting the offer. With your permission, the lender can tell the agent how confident her or she is that your loan will close and even share things like your amazing credit score. It will show the seller's agent that you have assembled a rockstar team, again driving home the point that working with you will be easy.
Now that you are equipped with some extra tools to win a bidding war without spending more than you want, go out there and start the house hunt! Make sure to come back and tell us how they worked for you.
Nestment is a matchmaking service that pairs you with a real estate agent you'll actually like. Free to you.
Nestment on Instagram
Caity Salvatore founded Nestment.com when she was sick of hearing her friends complain about their real estate agents. She is out to prove that great agents do exist, and works as a matchmaker between home buyers/sellers and real estate agents. She spends her days interviewing agents and bingeing on Dunkin Donuts.