For today’s topic, I am going to make it short and sweet. Last week, I posted about the market and how it heavily favors sellers. Today I’d like to focus on different tools buyers can add to their tool belt to make themselves more competitive in this market. The five recommendations below can be done in advance of your search to put you in the best position possible to secure your dream home.
- Get a great lender! In this market, lenders really can make or break your competitive edge. To take it even further, it is helpful to find a lender who is able to submit your file to underwriting prior to having a ratified contract. By doing this, you as the buyer can be fully underwritten and approved for your loan, making the action of waiving your financing contingency much less risky when it comes time to write an offer. It also looks great to a seller when a buyer is already approved, meaning there is less chance they buyer won’t be able to perform and close. Keep in mind, a financing contingency is in place so that a buyer can void a contract if they aren’t approved for their loan – this option makes it reasonable to remove that safety net as a buyer.
- Appraisal, appraisal, appraisal. Piggybacking off of the importance of a great lender, your appraisal contingency is one of the most important factors in an offer. The lender is required (most of the time) to have a third party assess the value of a home prior to the loan being cleared. This means if an appraisal comes in low, the lender will only offer the financing based on the lower number, thus leaving a gap between the contract sales price and the appraised value. With an appraisal contingency, the buyer is able to renegotiate the sale price as a result of the low appraisal. Not every buyer is able to waive their appraisal contingency, though it is common in this market. Those putting 20% down have a much easier time doing so, as compared to a buyer with 3% or 5% down. If you are putting 20% down, my recommendation (in most scenarios in this competitive market) would be to waive the appraisal contingency entirely. If the appraisal does come in below the contract sales price, lower your downpayment and bring extra money to settlement to cover the difference. Being able to waive the appraisal contingency entirely will give you a large advantage over other buyers who cannot. If you are putting 3 or 5% down, you likely will not have this flexibility. In this position, I recommend to my buyers to identify an amount that you are comfortable bringing extra to settlement. We will then do a partial appraisal waiver agreeing to cover the difference by this amount, but if the difference is greater then the buyer would maintain their ability to renegotiate on price. A partial waiver doesn’t always win, but it is a creative solution if waiving your appraisal is not an option. Either way, you will want to consider this tactic advance so you are well prepared for when you find your dream home.
- Budget for pre-offer inspections. Pre-offer inspections occur when a buyer does a “walk and talk” inspection prior to submitting an offer. If the inspection goes well, subsequently the buyer will waive the home inspection contingency in their offer. This is a staple of the spring market in the DMV. In many competitive scenarios, buyers will have little choice but to waive the inspection if they really want the home. This loop hole offers the ability to have an inspection done and waive the home inspection contingency. Keep in mind, this does cost money (usually around $350) and doesn’t necessarily guarantee your offer will be selected. As such, I recommend budgeting for these types of situations in advance. Keep in mind this strategy is specific to each listing situation, and sometimes is your best option, while other times it is not.
- Get yourself set up with an auto-email portal with a Realtor. It’s never too early to go ahead and get an auto-email portal set up with an agent. Your Realtor will go into Bright MLS, which is our home database, input your search criteria, and voila, you have daily emails that include homes matching your needs. The most important reason for having this set up once you get started is that it is the only place you will receive information on coming soon listings. Though buyers are not able to tour homes in this stage, your agent will be able to share information on when the home is expected on-market, and as a team you can schedule a time to go by as soon as the house is active. Time is really of the essence in this market, and I’ve experienced the most success in having an offer accepted the times that my buyers were one of the first offers in.
- Check out open houses in the early stages of your search (if possible). On the flip side, in my opinion, one of the best ways to make your search more efficient when you become more serious is to do as much research on the front end as possible. Go ahead and do the work to identify which neighborhoods you are most interested in. Unfortunately, a lot of listings aren’t making it through to the open house over the weekend, but if they do, it’s never too early to start looking around. Go drive and visit different areas during the day to see what neighborhoods you like best, and re-visit at night to see if you are still interested. This also gives you the opportunity as a buyer to really begin to understand how far your budget will go in different areas. My clients who have had the most success in finding a home sooner rather than later are the ones who’ve narrowed down their options and are really ready to go when they dive in.
Best of luck to all those buyers out there! With determination and persistence, you will find a great place to call home.