Buying a house is a big decision, but it can feel especially overwhelming to place an offer on a home less than 24 hours after seeing it for the first time. Plus youâre under pressure to outbid several other buyers â or risk losing the house.
While these circumstances might sound extraordinary, theyâre not. With housing inventory nationwide at an all time-low â down 22% from last year according to the National Association of Realtors â itâs no wonder buyers are competing for the same few houses.
I was in this exact position last fall. Here are seven key takeaways from my experience buying in a sellerâs market.
Get a Pre-Approval Letter
In order to be competitive in a hot sellerâs market, you will need to line up your financing in advance.
Besides all the usual suspects, like saving up for a down payment and improving your credit score, youâll also want to get a pre-approval letter from your bank. It states that a bank would approve you for a mortgage of a certain amount, and acts as a guarantee to the seller that you can actually afford to buy their house.
This is where it helps to know your budget up front.
âItâs important to understand that the strength of financing is a key consideration a seller takes into account when selecting an offer,â said real estate developer Bill Samuel.
No seller wants to risk accepting an offer that might fall through. Aand since pre-approval letters can take some time to get, have one ready before you find your dream house.
Be Friendly With Neighbors
This might sound crazy, but making a good impression on your new neighbors can actually make a difference when it comes time for a seller to review offers.
Since youâll likely be visiting the home at least once before making an offer, be prepared to talk to any neighbors you might run into. In close-knit neighborhoods, or ones where people share resources (like an HOA), sellers might care a bit more about the type of person they sell the house to.
If you happen to meet a neighbor when visiting the home, introduce yourself and make a good impression. You never know how much their opinion of you might factor into any final decisions.
Submit an Offer Quickly
After youâve seen a house, and decided you love it, be prepared to submit an offer quicklyâÂ as in, ASAP.
Work with your real estate agent to determine how many other offers the seller already has (or expects to get) and then be prepared to draft something up that day. In our case, we toured our home for the very first time at 11 a.m. on a Monday â it came on the market the evening before â and made an offer by 4 p.m. that same day.
If that sounds fast, it is. But by the time we submitted our offer, the seller already had three others. This is where it helps to have a great real estate agent on your side.
âHaving a realtor who can get your offer submitted quickly is crucial,â said Erik Wright, owner of New Horizon Home Buyers. âYou want to get your offer in front of the seller first, and make it strong. Purchase price is the obvious factor and in a competitive market, houses often go for over asking price. However, a strong offer has several factors and it depends on whatâs most important to the seller.â
Work with your real estate agent to find out what matters most to the seller â is it money, closing quickly, something else entirely? Then make sure your offer addresses their needs.
Minimize Your Contingencies (Within Reason)
Another way to win over your seller (and prevail in any bidding wars) is by keeping your contingencies to a minimum.
Contingencies are the contractual stipulations buyers and sellers must meet before the deal can close. Unsurprisingly, sellers donât like to have too many of them to deal with. Contingencies can include such things as requesting a seller to make certain repairs, getting a home inspection, or even the fact that youâll need to sell your old house before being able to buy the new one.
âIn a really aggressive sellerâs market, a home buyer who has to sell a current property should do so before placing an offer on another home,â said Jason Gelios of Community Choice Realty. âDonât always assume that the seller will take the highest price. Other conveniences can play a factor in gaining the sellerâs attention, especially things like faster closing times and less restrictions.â
While my partner and I didnât make the highest offer on our house, we did have the fewest contingencies âÂ mainly, we didnât ask too much of our seller in the way of repairs, or have another house to sell in order to afford the new one.
All that said, there are certain contingencies you should never forgo, and a home inspection is one of them. Getting your home inspected is hugely important, since inspectors will often find things even the sellers werenât aware of. No matter how much you love a house, donât be afraid of exercising your right to an inspection.
According to buyer protection laws in most states, sellers are required to report any findings in home inspections to subsequent buyers. In other words, if an inspector finds something wrong with the house, the seller will have to deal with it one way or anotherâÂ either with you, or the next buyer should you choose to drop out of the deal.
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Make a Generous Earnest Money Deposit
When trying to woo your seller in a competitive market, it helps to make a generous earnest money deposit. An earnest money deposit is a good-faith deposit requested by the seller when you enter into a contract to buy the house and typically run anywhere from 1% to 3% of the sale price of the home.
When deciding how much of an earnest money deposit to include in your offer, keep in mind that whatever amount you give comes off the price of the home (and is returned to you if the deal falls through). In other words,Â thereâs no reason to be cheap. If you can, go slightly above the sellerâs requested deposit amount. Even if itâs just a little more than what theyâre asking, that gesture of good faith might just be what gets you the house.
Offer Above Asking Price
Wait. Why would anyone make an offer thatâs above asking price? Because the competition did it first, and in a hot sellerâs market, offering above asking price is often what it takes to even be considered.
Upping your offer may not break the bank as much as youâre fearing. âWith interest rates so low these days, offering more than what the seller is asking may not make a drastic difference in your overall monthly payments,â real estate agent Pavel Khaykin of Pavel Buys Houses said.
Letâs say the listing price on your dream home is $320,000 and youâre able to put down a 6% down payment. That leaves you with a mortgage of roughly $301,000. For a 30-year fixed mortgage at an interest rate of 3%, that translates into $1,269 monthly payments. Now letâs say you decide to bid a little higher on the home and offer $10,000 over asking price. This would only bump up your monthly payment (assuming you qualify for that low interest rate) by $42.
Lace Up Your Running Shoes
In a hot sellerâs market, youâve got to be ready to move fast. Often this is more of a change in mindset than anything else. When my partner and I first started looking at homes, we considered ourselves casual buyers â that is, until our dream home came on the market late one Sunday night. From there, things moved quickly. We saw the home, made an offer, were under contract by morning, and spent the next month and a half going through the process of closing on the house.
If youâre serious about finding your dream home in the next few months, the best thing you can do is know what you want from the outset, and get your ducks in a row to make a compelling offer when you find it. Maybe this means making a list of your must-haves in a house, and working to improve your credit score. It might also mean reaching out to a real estate agent before you need one, and getting that pre-approval letter in place.
Although inventory is low, new houses come on the market all the time.
Larissa Runkle is a contributor to The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.