The Mortgage Update: Making a Competitive Offer in a Seller’s Market

How to Make a Competitive Offer

If you’re interested in purchasing a new home, but struggling to make a competitive offer, you’re not alone. After all, we’re currently in a seller’s market. In a seller’s market, there are more interested buyers than available housing. Due to the current market conditions, buyers typically end up in a bidding war, which drives up the original asking price.

Since buyers are competing with each other, it’s critical that you know how to make a competitive offer that gets accepted. Here are eight key steps you can take to make a competitive offer and land the home of your dreams.

1. Discover the Seller's Motivations

The highest offer isn’t always the best offer. After all, every seller has different needs. If the seller just secured a new job in a different city, their number one motivation might be closing as quickly as possible. For others, they might need more time before closing because they still need to secure a new home to move into.

By discovering the seller’s motivation, you gain a huge competitive advantage when structuring your offer. Speak with your agent to help you discover these motivations and adjust your approach accordingly.

2. Limit Contingencies

Contingencies are a common occurrence among mortgage transactions. They essentially mean the transaction of a house will only happen if certain conditions are met. If any of the conditions aren’t met, either party can consider the contract null and void.

Contingencies typically benefit the buyer, and you can’t expect a seller getting multiple offers to accept unnecessary contingencies. With multiple offers on the table, they have more leverage.

Keep in mind, there are contingencies you absolutely do not want to remove such as a home inspection contingency. After all, the last thing you want is to purchase a home that you can’t afford the repairs for.

Limiting contingencies can make your offer more appealing, but make sure you don’t give up too much. Speak with your agent and be strategic with your approach.

3. Offer More Earnest Money

Earnest money, also known as a good faith deposit, is put down prior to closing. It isn’t always a requirement, but it’s a good idea to offer it to show the seller you’re serious.

When a buyer and seller enter a purchase agreement, the seller takes their home off the market. If the buyer backs out and the seller needs to relist their home, it can be very costly and they might have missed out on more serious buyers.

Earnest money protects the seller in case the buyer backs out of the agreement. Typically, it’s around one to three percent of the sale price and is held in an escrow account until the deal is finalized. If the deal goes through, the earnest money is then applied to the buyers’ closing costs or down payment.

If all contingencies are met and the buyer just had a change of heart, the seller keeps the earnest money. If the deal falls through due to contingencies listed in the contract, the buyer gets their earnest money back.

So, offering earnest money above market standards can be a sign of good faith to let the seller know you’re a serious buyer.

4. Make an Emotional Connection

Tell the seller why this is the perfect home for you. Is it in a great neighborhood for your kids? Maybe the backyard is everything you’ve dreamed of? Establishing a connection with the seller can make a huge difference.

Oftentimes, the seller has an emotional attachment to their property. If the home has sentimental value to the seller, and they’re considering similar offers, they’d be more likely to sell to someone they made a connection with.

There’s a lot of strict procedures that go into the home buying process for all parties involved. Don’t forget about the human element and make an emotional connection so that your offer is remembered.

5. Include Essential Information

First impressions are everything, you want to stand out from the pack. It’s important to include essential information such as the price you’re willing to pay, fees and earnest money, any contingencies, and the purchasing time frame you have. This information can be a deal-breaker for the seller, and you don’t want to leave them wondering.

The home selling process is lengthy enough, you don’t want them to contact you regarding information that should have already been included.

6. Offer Above the Asking Price

Although interest rates have increased, they’re still near record lows. With so many buyers in the market, it’s not practical to make a low offer and expect someone to bite. You need to make a strong offer to beat out multiple bids.

Don’t let the thought of offering above the asking price overwhelm you. You want to show the seller you’re serious, and you can often achieve that effect by offering just $3,000 to $5,000 over asking price. You can also get your agent to ask the seller what prices they’ve rejected to get a better understanding of what you should offer.

Making an offer above the asking price won’t end up costing you much in the long run, but it’s still important to not spend above your means.

7. Assemble an Escalation Clause

An escalation clause is a way to automatically increase your bid by a certain amount, up to a specified maximum amount, but only if your original offer got outbid. This is a great way to show the seller you’re serious and can prevent you from losing a bidding war over a miniscule amount.

Keep in mind, you do risk the seller seeing the true amount you’re willing to pay. Ask yourself, is this house truly worth it? Remember, a home is an asset and you never want to pay significantly more than the appraised value.

8. Be Prepared to Move Quickly

In today’s market, homes are typically sold within 17 days, and receive more than 4 offers. So act fast! When you’re in the market for a new home, you need to be able to move quickly and at short notice.

Once you find the home you want, you don’t have time to waste. Contact your agent as soon as possible, that way, they can schedule showings right away and help you make an offer. When you’re in the market for a new home, be prepared to work with your agent so you can submit your offer as quickly as possible.

After all, the last thing you want is for your dream home to be taken off the market before you even get a chance to make an offer.

Bottom Line

Don’t miss out on a good opportunity because you didn’t go the extra mile. Establishing yourself as a serious buyer and making things as easy as possible on the seller can make all the difference. So, utilize these tips and land the home of your dreams!