Effective Strategies to Win a House in a Competitive Market
If you plan to buy a new home this year, expect that you'll have some competition. But don't despair—prepare!
There are plenty of things that you can do to increase your chances of success in a multiple-offer situation. Your agent is the best source of information when it comes to strategizing about specific scenarios, but here are a few things to consider as you get ready to house hunt this spring.
Get (and Keep) Your Finances in Order
Financial preparations for your home purchase should begin at least three months before you start reaching out to potential lenders.
If you are planning to accept gift money from family members towards your down payment, get it into your account 60 (or ideally 90) days before applying for your mortgage.
Check your credit reports and address any errors you find. You are entitled to one free credit report from each of the three credit bureaus (TransUnion, Experian, and Equifax) every year.
Once you have made sure everything looks as expected, keep your spending habits consistent, pay your bills on time, and avoid any scenarios that could raise red flags for lenders. Things to avoid include making big purchases (cars, appliances, etc.), quitting a job, or opening up any new credit.
Before looking at potential homes, get preapproved—not just pre-qualified. Preapproval requires credit and employment history checks by a lender and results in a letter that clearly states how much you will be able to borrow for your home purchase. Homes are moving fast, and you want to show the seller you are a serious buyer when the right property comes on the market.
Preapproval will also give you a clearer sense of your target budget. And on that note.
Consider Homes Slightly Below Your Price Range
If possible, look for homes that are a bit below your target price so that you have the room to comfortably make an offer that is 1–3% over asking. Making an offer over asking isn’t always necessary, but an over-asking bid is often a strong move in a competitive market.
You might also consider speaking with your agent about whether an escalation clause or “escalator” is worth considering. This type of clause tells the seller that you’re willing to automatically raise your initial offer up to a set amount over competing offers. An escalation clause only kicks in if there are multiple offers in play.
Rethink Mortgage and Appraisal Contingencies
A mortgage contingency is a purchase and sale agreement clause that gives you a set timeframe to secure a mortgage loan. It allows you to get your initial deposit back and walk away from the transaction if you cannot secure a loan.
Waiving a mortgage contingency can give you an edge because it gives the seller confidence in your offer. It does, however, come with risk. If you can't get a loan in time, you could lose your earnest money or more if the seller takes legal action.
A different strategy has become more common in this market: appraisal gap coverage. Because of the inflated home prices in the current market, properties are less likely to appraise at the purchase price.
Appraisal gap coverage is a clause stating that you will cover the difference between the appraised value and the home's sale price up to a certain amount. It's safer for you as a buyer than waiving the appraisal contingency outright, but it gives the seller more confidence in your offer.
Adjust Your Inspection Strategy for a Multiple Offer Situation
The inspection contingency is another area of your offer where some strategy can make a big difference. Remember, anything that signals a clear and easy path to closing is going to be attractive.
If you can, get permission to do a pre-inspection so that you can make an offer with the knowledge you gained from the pre-inspection in mind. Getting information about the property in advance will let you make an offer without an inspection contingency.
Alternatively, you could opt to shorten the timeframe for your inspection contingency or ask to do a mini-inspection. Many inspectors are now offering compact inspections that only look at the big things like the roof, boiler, and other major systems. You could also modify the inspection contingency to say that you won't return to the seller with issues under a specific dollar amount. By identifying this threshold, you assure the seller you will not nitpick minor repairs. At the same time, it gives you peace of mind that significant issues can be addressed.
Finally, you could opt to waive your inspection altogether. It’s a move that we wouldn’t normally advise, but in this market, it’s making all the difference in some situations. If you choose to skip the inspection, make sure to have a financial plan in place in case you encounter any major issues or surprises after closing.
Find Out Closing Needs and Be Accommodating
Contrary to popular belief, the highest bid doesn’t always win. There are times when a seller’s timeline or other factors influence which buyer they choose.
Enlist the help of your agent to gather as much information as possible about the seller's circumstances and preferences regarding the closing. The more flexible you can be regarding things like closing date, the better.
Sometimes the seller might even need to rent their property back for a brief time after closing until they are ready to move into their new home. In this instance, if you can accommodate their request, you can make a use and occupancy agreement (U and O) to allow them to rent back from you temporarily.
Whatever you do, trust that with patience, strategy, and the right agent by your side, you can land the right home, even in a competitive market.
Are you planning to purchase a home this year? Contact your Rutledge agent or click the button below to get matched with a member of our experienced team.