The good news is that the residential real estate market is recovering and even becoming “hot” in certain markets. The downside is that we are hearing stories from lenders that they have hundreds of pre-approved borrowers who cannot find a suitable home for which they are qualified to purchase.
Improved demands for homes and limited supply have resulted in increasing residential real estate values. Many buyers may be competing for the same home within days of it being listed. While this is good news for the sellers, it brings challenges for the potential buyers.
We are going to list some tips for potential buyers on how to win the bidding war:
- Develop a relationship with a good mortgage loan officer and get preapproved for a loan. Ask to be preapproved for the largest mortgage loan you will qualify for and that you feel comfortable with the mortgage payment. The preapproved loan will give you flexibility in the bid process when you find your dream home.
- Research real estate agents in your market and hire one that sells many homes in a year. You want an experienced professional advising you on the purchase of a lifetime. Ask for referrals from your friends, family, coworkers, mortgage professional and banker. Interview the agents and select the one you believe will represent you the best.
- Learn all you can about the seller and their reasons for selling. Information about the seller’s circumstances will allow you to tailor your offer to make it more attractive to them. For instance, if they are building a new home and it will not be ready for several months, your offer may be to purchase the home and allow them to rent it from you for a few months.
- Be careful with contingencies (example – making the contract subject to the buyer receiving financing) to your offer. Even if your purchase price is higher than other bidders, the seller may consider the cost and risk based on contingencies and choose a lower purchase price.
- Make an appointment to present your offer in person with your agent. We have heard stories where the seller accepted the less attractive offer because they felt a personal connection with the potential buyers. Presenting your offer in person also convinces the seller you are serious.
- When you meet the sellers, make it personal. Tell them why you love their home and how you envision your family enjoying it in the future. Most sellers are emotionally attached to their home and want the “right family” to purchase it.
- Show the seller the money. If you know it is a hot market and may have multiple bidders, make your initial offer your best offer. Don’t offer less and expect to negotiate later. When there are multiple offers, sellers don’t have to waste time negotiating. If your first offer is acceptable to the seller, they may accept before multiple offers are submitted.
- Understand the appraisal may not support the contract price. Lenders loan on the lower of the two, contract price or appraised value. Be prepared to bring additional dollars to closing should the appraised value be less than the contract price.
In a future blog we will discuss, “What to do if The Appraised Value is Less Than The Contract Price.”
Valuation Management Group is a national, full service appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We take the process from ordinary to extraordinary.