Submitting Your Best Offer In A Competitive Market

If you are thinking of buying a home in a competitive market, it’s good to know how you can make your offer as attractive as possible to the potential seller.  The more attractive you make your offer, the better chance you have to get it selected in a bidding war.

What does a competitive market mean?

First, you need to know what kink of market you are in.  For homebuyers, a competitive market means that there are more buyers looking than there are homes on the market, or more inventory.    This is why there are bidding wars for homes that are priced well, and it’s called a “Seller’s Market”, where the market favors seller.  So, how do you know if you are in a buyer’s market?  Your real estate agent should be able to tell you, but If you find yourself not seeing many houses in your price range for sale and if you are seeing lots of bidding wars for homes than that should tell you that you are in a seller’s market.  In this type of market, prices tend to go up.

A “Buyer’s Market” means that there are more homes on the market than there are buyers that are looking, and it favors buyers.  Homes tend to stay on the market longer and prices come down.  Buyers are able to negotiate better terms for themselves, and they can take their time looking for homes and making decisions.  

Now that you know the difference, we’re going to look at submitting offers in a competitive buyer’s market.  To make your offer look as attractive as possible take note of the following.

•  Submit the Highest Offer Price That You Can
  In a competitive buyer’s market, a good strategy is “go in strong”.  This means submitting the highest price you can submit with guidance from your real estate agent.   An agent will guide you and let you know what price range the houses in the area are going for, so you won’t feel like you are overpaying for a house.  Of course, you still want to stay within your budget, so having a good handle on how much you can pay monthly will also guide you on how much to offer.  
  
  
• Offering a Larger Initial Deposit
  The initial deposit gets paid early in the transaction process, after the offer gets accepted and the contract is signed by all parties.  This deposit from the buyer gets sent to the title company escrow account and is held until closing where it gets distributed to the seller.   Putting down a larger downpayment of $5,000 or more will show to the seller that you are a serious buyer.  The larger the initial deposit, the stronger your offer.  Keep in mind that once an offer is accepted and under contract, the seller will be taking the home off the market, so they want to make sure that you are a strong buyer.  The amount of the initial deposit goes on the offer so the seller will see how much you are proposing.  The initial deposit comes out of your downpayment amount.  Note that with the initial deposit there is a risk of a buyer losing that money, should they cancel the contract for no reason at all.  Also, if there is a dispute or disagreement with the seller, losing the deposit may be the result.  I tell buyers to keep them in mind as they are submitting offers. 
  
  
• Minimize Contingencies
  Another tip I give buyers is to minimize contingencies.  A contingency is a condition that must be met for the contract to become legally binding.  It allows the buyer or seller to cancel the contract without penalty if certain conditions are not fulfilled within a specified timeframe.  Typically, most buyers have mortgage and inspection contingencies.  That means that if buyer is not able to get their mortgage financing or if they find an issue on the home inspection, then they may be able to cancel and get their initial deposit back.   If sellers receive an offer that removes one or both of those contingencies, then they may be more willing to accept that offer because there is less of a risk of the deal falling apart.   I bring these options to the buyers, so they have an opportunity to make their offer stronger.  Now, I never recommend buyers remove inspection contingency, but they may want to do an inspection before submitting an offer or in NJ, during the attorney review period, to see if they want to move forward with the purchase without the inspection contingency.  The buyer will know what issues the home has with their condition and still decide to buy the home without the contingency inspection. 
  
  If a buyer needs to get a mortgage, then it is difficult to remove that financial condition.  Rarely, a buyer will remove the financial contingency if they can get cash temporarily to buy the home, then get a mortgage after the purchase.   It’s hard to compete against an all-cash offer, which has no financial contingency, but using this tactic can help you be next in line should the cash offer deal fall through. 
  
  
• Larger Downpayment
  The more of a downpayment a buyer puts down, the stronger your offer and the less risk of the contract falling apart.  This is very attractive to the seller.  I’ve worked with buyers who decided to do this by putting 25-50% (or more) downpayment amount.  This may not be possible with most buyers, but if they are able to, it will look more attractive.  Even with a higher downpayment amount, it is still difficult to compete against all cash offers, but you can come a close second should the cash offer deal fall through. 
  
  
• Flexible Closing Date
  Sometimes the seller needs more time to sell their home, so they may need a 60-90 day or more closing.  That means that you will complete the closing later than you may have anticipated.  But if you are flexible, you can state so on the offer, and it can make your offer more attractive.  Conversely, the seller may desire a quicker closing, fewer than 30 days.  The buyer can indicate their ability to close quickly on the offer.   Buyers will check with their mortgage company to see if they are able to process the loan in time for closing. 
  
  This information may be provided during the offer stage from the seller’s agent.  Also, your agent can find out what the seller’s goals are and what the buyer can do to help them reach their goals during the offer and negotiation stage. 
  
  
• Escalation Clause
  This is rarely used but in a very competitive market, more buyers are using it to try to stand out from the other bidders.  An escalation clause is a provision included in an offer that allows a buyer to automatically increase their offer price in specific increments if another buyer submits a higher bid.  This tells the seller that the buyer has a strong interest in their house.  The escalation offer will include the initial offer amount, the increment (usually $1,000, $2,000, or $5,000) and the cap (the highest amount they are willing to go).  For example, you can offer $250K on a house with an increment of $2,000 and cap of $300K.  So, if the seller receives an offer of $280K, then your offer will automatically increase to $282K.  When a seller accepts an offer with the escalation clause, the seller’s agent will need to send a copy of the other they received to the buyer’s agent as proof.  
  
  There are some sellers and their agents that prefer to not use escalation clauses, usually because they do not understand them or find them as a hassle.  But I have sellers that have used them and have been very happy with the outcome – they end up getting a higher price for their home! 

So, there you have it!  Those are some tactics that buyers can use to help make their offer more attractive in a competitive market and maybe even win the bidding war.  They may not always work, but it is worth taking a shot to help you find your dream home.

If you are ready to start or restart your home search reach out to me anytime at ccr@ccrsellsrealestate.com, or to set up a quick chat, click below!