What Can a Buyer Do in a Seller’s Market?

There is no question that we are still in a Seller’s market. The median sold price in February was up 10.3% over the 2017 February median sold price. The lack of inventory and the competition for homes is especially frustrating to buyers. If you are a buyer and you are tempted to give up looking for a home, I have a little good news for you.

The Denver Metro Realtors Association released their April market report with some positive news for Buyers. The Market Trends Committee saw active housing inventory increase 13 percent month over month in March to 4,482. As the Denver Metro February 2018 numbers saw the lowest inventory mark, this is significant.

In March, 6,335 new listings were added to the housing market, an increase of 36.44 percent from the month prior. That increase was slightly offset by 5,674 listings being placed under contract, demonstrating strong home buying activity.

So, what can a buyer do to improve their chances of getting their offer accepted in this competitive market? Below are some tactics to use during the search and offer process.

When looking for a home:

1. Have a pre-approval not a pre-qualification letter from a quality lender. A pre-approval means the lender is indicating that based on the info the buyer provided, they look to be qualified. Any new information obtained during the pre-approval process could change this. With a pre-qualification letter, the lender has taken the next steps and verified the income and asset information provided by the buyer. This will significantly cut down the loan process timeframe and reduce the possibility of the loan falling through. The Seller will see your offer as stronger than those with a pre-qualification letter. Not all lenders are equal. Using a locally based lender that knows the area will reduce unnecessary requirements. You also want a lender that has a track record of closing transactions. The right lender made the difference on one of my transactions.

2. Have as much cash available as you can manage so you can make your highest and best offer when you are ready to submit an offer. You may not get a chance to negotiate. Having cash is not possible for some people if you don’t have assets you can use. However, if you don’t have the cash available you might be able to use your 401(k) account. Most 401(k) accounts allow the withdrawal of funds to purchase a primary residence. The withdrawal becomes a loan that is paid back from your paycheck. Of course, those funds are meant for your retirement so you may be hesitant to withdrawal from your 401(k). Here is an alternative. A lender I work with has a program where you can pay for the down payment with cash from your 401(k) and then they will concurrent give you a loan at close that will pay back the 401(k) money. It is set up to pay off the 401(k) loan in the time frame that will eliminate any penalties.

3. Have your Realtor contact homeowners in your preferred neighborhood. The agent can call or mail the homeowners a letter letting them know that they have a buyer that is interested in purchasing a home in the neighborhood. They can also contact expired and withdrawn listings. This tactic can be used to find homeowners that have considered selling but don’t have their property listed. They may not want to deal with the hassle of listing their home.

4. If you have a home to sell, get it under contract before you make an offer. Like it or not, Sellers see a home contingency as a negative. They fear that if they must wait for your home to sell then it may cause problems for the closing on their transaction. If your home is under contract already, then it reduces some of the Seller’s worry. A better tactic might be to sell your home and rent until you find the home you want. This tactic not only removes the contingency but may make your offer a cash offer. A definite point in your favor as far as the Seller is concerned as it will likely mean a faster close.

5. Consider delaying your home search until September. Prices and competition for homes start to drop off as kids go back to school and people start thinking about the holidays. There won’t be as much inventory either, but you won’t have to go up against 20 other buyers if you find the home you want. A bonus point is prices will be lower.

When making an offer on a home:

1. Agree to make earnest money “hard” after a certain date such as after the inspection. This means the earnest money will not be refundable after the specified date. It shows the Seller that you are a serious buyer and reduces the possibility that the buyer will get “buyer’s remorse” and back out of the transaction. A Seller’s worst nightmare is to take their property off the market for four weeks only to have the buyer walk away before the transaction closes.

2. Use an escalation clause. An escalation clause states that the buyer is willing to beat any offer higher than their offer by a specific amount over the highest offer with a maximum purchase price. For example, the purchase prices might be $250,000. The escalation clause will state the buyer is willing to beat any offer over $250,000 by $1000. As long as the final purchase price does not exceed $260,000. Escalation clauses have positive and negative points. The downside is the Seller will know exactly what is your top purchase price. If there are multiple contracts, then escalation clauses are nightmares for the listing agent. One of the positive points is that your offer will not be automatically be kicked out by higher offers.

3. Agree to pay the difference if there is a gap between the appraisal and the purchase prices. Lenders will only lend on the lesser of the appraised value and the purchase price. In the past, if the appraisal came in lower than the purchase price, then the contract was open for negotiation. Recently we have seen buyers offering to pay the difference. If you use this strategy then your real estate agent should have a very strong handle on the values in the neighborhood. Prices will most likely go up but if they don’t, you may have overpaid for the property if you paid for the appraisal gap.

4. Agree to either waive the inspection or agree to require no inspection requirements. I would never recommend waiving the inspection unless it’s a very new home. Even then I would recommend getting the inspection, so you know if you have any potential issue. If you get the inspection you can agree to not request any fixes. Repairs required by home inspections are expensive for seller so knowing that they won’t have to make any repairs could be a point in your favor.

5. Write a letter to the Seller about what you value about the home. It may seem corny to you but Sellers want buyers that will love the home as much as they did. It puts a face to the buyer and personalizes it for the Seller. I have seen more than one transaction where the Seller went with a buyer with a lower offer because they liked the letter the buyer wrote.

Finally, all of this may seem overwhelming so your first step is to select the right real estate agent. A good agent will already know these tactics and when to use them so they can make the process stress free for you.

If you are interested in seeing some more stats from the Denver Metro Realtor’s market trends report, you can down the report at this link-  DMAR April Market Trends Report