Today’s amazingly low interest rates make it a great time to buy a home. Yet buyers are having a hard time getting a contract accepted on the home of their dreams because of ridiculously stiff competition and a short inventory of available homes. Can you still get a contract on a home in such a competitive market? Of course you can. But if you’re planning on buying a home in the D.C. region soon, make sure you pay attention to these crucial steps to give you the upper hand when making an offer:
View early and be ready to act. Right now, many properties are going on the market late in the week, have viewings over the weekend, and are under contract by Monday or Tuesday. Don’t wait too long to see a property of interest. Viewing on Friday, Saturday, or Sunday may be most advantageous because agents often allow showings through the first weekend and set deadlines for offers the following Monday or Tuesday. But remember, not all sellers will wait. Some will accept a strong offer quickly. If you’re interested in a property, see it as soon as possible. This could give you time to get an offer together before someone else locks in a ratified contract.
Also, be prepared. This means reviewing contract documents before ever making an offer, have your finances in order, and have an earnest money deposit check ready. During this process, respond quickly to agent requests for information and ensure you sign documents (usually electronically) as quickly as possible so your agent can meet any deadlines.
Make an offer that can compete with all-cash offers. For most people, buying a home with cash isn’t feasible, so their offers are contingent on getting a loan. But buyers in our market are often competing with all-cash offers that have no financing contingency and no appraisal contingency. If the cash offers also have competitive offer prices, they are extremely hard to beat, but there are some things you can do to compete, even if you’re getting a loan. For starters, you can ask your lender to put the loan application through underwriting, although that can take a couple weeks 0r more, and get it approved at the highest possible purchase price before making offers. Once that’s done, ask for a loan commitment letter from your lender rather than a mere pre-approval letter. That way, your offer is much stronger because your loan is basically complete and just needs to be finalized after you go under contract, which may take a few days rather than 30 or more. The lender will still need to reverify employment, credit, and possibly bank statements shortly before the closing date to make sure nothing has significantly changed. We are not lenders (see disclaimer below), so do ask your lender for details on their specific process.
Of course, lenders will still require an appraisal contingency, which gives you options if the property doesn’t appraise as well as a termite inspection for single family homes, townhomes, and some condos. However, some buyers will even waive the appraisal, agreeing that even if it does not appraise, they will simply put down a bigger down payment to make up the difference. In this case, you’d need to be 100 percent sure you have funds for the bigger down payment. Buyers who can basically eliminate or shorten financing contingencies timelines are in a much stronger position and may easily compete with all-cash offers.
If you decide to hold off on underwriting until you have a contract, make certain your loan officer is readily available to provide pre-approval letters on short notice—even on weekends—when offers are made. Inaccessible lenders can completely undermine the opportunity for you to compete.
Make a big down payment. If your offer is contingent on a loan and you can manage it, a large down payment at closing shows the seller you have the ability to get the deal done—even if the house does not appraise at the agreed upon price. If the appraisal comes in below your offer price, the contract will dictate the options for both the buyer and seller to reach settlement. The type of loan you’re applying for (e.g., FHA, VA, or conventional) can affect those options, so make sure you carefully review the appraisal provisions of the financing contingency paperwork that will accompany the offer.
Pre-inspect or do “option to void only” inspection contingency. If there are no competing offers, we recommend that our buyers have a regular inspection contingency with the option to negotiate repairs. Yet if there are multiple offers, that contingency can be a huge disadvantage. Still, we never recommend that our buyers simply skip the inspection, because when spending hundreds of thousands of dollars on a home, buyers need to do their due diligence. However, there still are ways to eliminate that disadvantage.
If sellers are willing and there is time before they plan to review offers, you can request an appointment to inspect before making an offer. In this case, there is always the risk of spending hundreds of dollars on an inspection and still not have your contract accepted. But a pre-offer inspection will allow you to make the offer without an inspection contingency. For many buyers, it’s worth the risk, even if they end up pre-inspecting several homes before getting a ratified contract.
Another option is to make an offer with an inspection contingency that only allows you to void the contract if the inspection is unsatisfactory. In this case, sellers will know up front that you won’t nickel and dime them for a bunch of repairs, while you retain the ability withdraw after inspection. If an inspection contingency is part of a contract, this option can substantially strengthen an offer over other contracts that insist on repair negotiation after inspection. You can still withdraw for any unspecified reason using the home inspection contingency, so long as you provide the inspection report to the seller within the inspection contingency period indicated in the contract.
Add an escalation clause. We will typically ask the seller agent if there are multiple offers on the table or if they expect other offers on the property in which you’re interested. If there are other offers, you may want to employ an escalation clause that will incrementally increase your offer up to your maximum amount, outbidding your competition. You can retain your right to an appraisal contingency with the escalation clause. You must ensure you are approved by your financial institution for your maximum offer. If you have a loan application that’s approved and through underwriting, you must make certain your loan covers up to your top escalation price as well. If you prevail with an escalation, have your agent ask to see the competing offer to confirm it really exists.
Don’t low ball. Low-ball offers are fine and warranted if the property is in low demand, has been on the market a long time, or is vastly overpriced. However, in a competitive situation, a strong offer needs to be at a reasonable market price. Otherwise, you basically exclude yourself from any serious consideration. We will help you determine a reasonable price using data from recently sold comparable properties. If there are multiple offers in play, it’s likely the home will sell above the asking price.
Most recently, the buying and selling process has moved into interesting territory. Overall, we’re pretty deep into a seller’s market, with the small caveat that buyers are able to afford a bit more, simply because interest rates are so low. Still, inventory is quite low, so competitively priced properties often will see multiple contracts that ultimately put the seller in the driver’s seat. But simply offering the absolute most money over any other contract isn’t the be all, end all of the process. It’s offering the best contract conditions that will indicate to the seller a smooth journey to settlement. Will the highest price offers be in the running? Of course. It’s the first thing a seller will look at. But a strategically crafted offer with a good price that includes incentives for the buyer throughout that process, such as limited contingencies, can be the formula to have your offer rise to the top.
Angela Logomasini and her husband Christopher Prawdzik are licensed Realtors® with Samson Properties in Alexandria. Operating as D.C. Region Real Estate, they serve the Virginia, Washington, D.C., and Maryland real estate market and offer comprehensive real estate services, including 4½% full-service listings.
Disclaimer: The information found on this website is provided as background information only. Angela Logomasini and Christopher Prawdzik are not licensed to provide legal advice nor are they licensed experts in home inspection, home improvement, and other fields home inspection expertise, lending an attorneys, home inspectors, lenders, or home improvement specialists, and or other fields outside of their expertise as licensed real estate sales persons.
