How to Win as a Buyer?

What must buyers do in this highly competitive environment? So, we're seeing competing offers and it's been a very busy start to 2024. In the whirlwind of today's real estate market, being a buyer can feel like navigating a maze of competing offers and limited inventory. It requires strategy, foresight, and a willingness to go the extra mile. So, how can you emerge victorious as a buyer in this challenging landscape? Let's dive into the essential tactics with Brock Fletcher, your guide to conquering the realm of home buying in 2024.

(1) Write a Great Offer

The foundation of your buying success is in writing an offer that stands out from the crowd. Timing is everything.  For properties on the market for less than two weeks, offering below the asking price may not be viable. However, for listings lingering for 30 days or more, there's room for negotiation on price. Be strategic and tailor your offer to the unique circumstances of each property.

(2) Harness the Power of Escalation Clause

An escalation clause is something in an offer that automatically increases the price of your offer. So, let's pretend that we're talking about a $300,000 property, and you write an offer for $300,000, and you know you're competing with maybe five or six other offers, and you believe this property is for you. So, what you might do is initially offer for $300,000, and use an escalation clause that says this, 

I'm going to beat the next highest offer by $5,000 up to a price not to exceed $330,000. 

Meaning, if there are competing offers, you'll beat the next highest offer by $5,000 up to a final price not to exceed a total amount of $330,000. We're seeing escalation clauses used in most winning offers right now. By strategically employing this tactic, you can ensure that your offer remains competitive without overextending your budget.

(3) Master the Home Inspection Contingency

When including a home inspection contingency in your offer, it's essential to strike a balance that protects your interests as a buyer while also reassuring the seller that you won't nitpick minor issues. I advocate for providing buyers with the opportunity to conduct all standard inspections, including inspections for pests, radon, HVAC, plumbing, and heating. However, it's crucial to convey to the seller your willingness to be cooperative throughout the process. One effective approach is to specify a threshold for repair requests, such as stating that you will not seek repairs costing less than $2,000. This communicates to the seller that while you value an inspection, you're not inclined to burden them with trivial repair demands. Instead, you aim to address significant issues that may arise unexpectedly. This strategy fosters a positive perception of your offer, demonstrating your commitment to the home while minimizing potential friction during negotiations. Ultimately, it enhances your competitive edge in securing acceptance of your offer.

(4) Utilize Appraisal Guarantee

An appraisal guarantee is essentially a commitment made by you to the seller. It signifies that if the bank's appraisal for your loan falls short, you are prepared to bridge the gap by contributing additional funds based on the appraisal shortfall. For instance, imagine you've agreed to purchase a property for $300,000 and have employed a $10,000 appraisal guarantee. In this scenario, if the appraisal falls within the range of $300,000 to $290,000, you, as the buyer, would cover the disparity in cash at the time of closing. However, if the appraisal value is even lower, such as $280,000, and you've utilized the same $10,000 appraisal guarantee, you would commit to covering the shortfall up to $290,000. Any difference between $290,000 and the agreed-upon purchase price of $300,000 would remain unresolved. Now, you might wonder, why would anyone be willing to pay more for a property than its appraised value? The answer lies in the competitive nature of the housing market; property values are experiencing steady appreciation. While the current market conditions may result in appraisals lagging behind actual value due to reliance on historical data, it's important to recognize that this discrepancy is temporary. Historically, home values have exhibited an upward trajectory, increasing by at least four percentage points annually. Therefore, although you may initially pay more than the appraised value, it's a calculated risk considering the long-term appreciation potential of the property.

(5) Beef up the Good Faith Deposit

Typically, buyers are expected to put down around 1% of the purchase price as earnest money. For example, if you're buying a property priced at $300,000, your good faith deposit would amount to $3,000, constituting 1% of the sales price. However, there's an opportunity here to enhance the strength of your offer beyond the norm. Particularly if you're in a competitive situation and aiming to stand out, consider bolstering your good faith deposit. This strategy can be particularly effective for buyers with substantial down payments, such as 20% or 30% of the purchase price. For instance, in a $300,000 transaction where the down payment is $60,000 or more, offering a higher earnest money deposit of $5,000, $10,000, or even $20,000 can significantly differentiate your offer from others. By increasing your earnest money deposit, you demonstrate to the seller that you're serious about the transaction. In a market where multiple offers are common; this can give you a competitive edge. For instance, if competing against offers with standard earnest money deposits, your higher deposit makes your offer appear stronger and more committed. It's important to note that while you're increasing your earnest money deposit, your funds are still protected by two key contingencies: the inspection contingency and the financing contingency. If the inspection reveals any issues that prompt you to withdraw your offer, you're entitled to receive your earnest money deposit back. Similarly, if unexpected circumstances, such as a job loss leading to loan denial, arise before closing, you can back out of the deal and retain your good faith deposit. Beefing up your good faith deposit can significantly enhance the attractiveness of your offer and may even sway the decision in your favor when competing against others. It's a prudent strategy that demonstrates your commitment to the purchase while ensuring your financial interests are protected.

(6) Offer Post-Closing Occupancy

Offering Post-Closing Occupancy to the seller is one of the byproducts of this environment we're in, which is we have really low inventory.  In many cases, a seller is putting their home on the market and they don't know where they're moving to. A lot of times, until they get an accepted offer on their home, they don't have an ability to get an accepted offer on what's going to be their new home. And the byproduct of that is, in many cases, as a matter of fact in most transactions, the sellers need some amount of occupancy after closing. What I'm seeing as most typical is 30 days of occupancy after closing. So then, another tactic in the offer, you offer the sellers 30 days of occupancy after closing rent free. In a competition where we've addressed price, escalation clause, and all the other things, this can be one of the final components that gets you the winning offer. 

(7) Choose the right Real Estate Agent and Lender

The last critical elements I want to emphasize are the importance of having an excellent agent and collaborating with a reputable lender. When your buyer's agent crafts an offer on your behalf, the listing agent and sellers are evaluating the strength of your offer and they're also assessing the caliber of your chosen real estate agent and whether the agent instill trust to efficiently handle your purchase transaction. Choosing the right agent is often overlooked but holds significant weight in a competitive market. While I and my team would certainly welcome the opportunity to work with you, we understand you might have already entered into an agreement with another buyers agent.  It’s crucial to understand that your real estate agent should be recognized and respected within the industry. When competing against multiple offers, listing agents frequently communicate to sellers the professionalism and success record of the buyer's agent. This reputation is paramount. Equally important is partnering with a reputable lender.

Local lenders, with a solid track record of successful closing, can positively influence the evaluation of your offer. Listing agents and sellers scrutinize not only the terms of your offer but also the reliability of your lender. Opting for a reputable local lender minimizes the risk of appraisal issues and assures the sellers of a smooth financing process. Conversely, engaging an out-of-town lender, online only lender, or one with a questionable reputation, can weaken your offer. Therefore, to maximize your chances of success in this competitive landscape, ensuring you have a trusted agent and a reliable local lender. 

Navigating the challenges of today's real estate market as a buyer demands strategic planning and calculated maneuvers. With inventory levels at historic lows and competition fierce, it's imperative to employ tactics that set your offer apart from the rest. From crafting a compelling offer to utilizing escalation clauses, mastering the home inspection contingency, and beefing up your good faith deposit, every detail counts. Offering post-closing occupancy can be the final touch that seals the deal in your favor. However, none of these strategies would be as effective without the guidance of a seasoned real estate agent and the support of a reputable local lender. Together, they form the pillars of your success, instilling confidence in sellers and lending credibility to your offer. So, as you embark on your home buying journey in 2024, remember to choose your team wisely and arm yourself with the knowledge and tactics necessary to emerge victorious in this competitive landscape. With the right approach and the right partners by your side, your dream home may be closer than you think.