It is no secret that inventory levels across the country are extremely low and are contributing to current local market trends, namely rising real estate values. Stories can be found across the Internet, in newspapers, and on television about fierce competition between homebuyers that are struggling to get their offers accepted.
This article aims to arm you with strategies to navigate the crowded and highly contested world that many buyers are finding in their local real estate markets. It is possible to make your offer stand out in a crowd of 10, 20, sometimes even 30 other offers. In many housing markets, the days of simply writing up an offer and emailing it to the listing agent, who then gladly encourages their client to accept it, are over. More dedication and effort is often required to seal the deal. It is now necessary to romance the seller and their agent.
Knowing Your Market Matters
The hotter your market, the more you will need to get creative with your offers.
For example, San Diego, which is my local real estate market, is currently scorching hot. Prices are up over 15 percent from where they were when the real estate market collapse was at its worst. San Diego’s inventory levels are half of what they were a year ago, and buyer confidence is back in a big way. Interest rates are still near record lows, and there is very little new construction.
San Diego has natural limits to its expansion. The Pacific Ocean is to the west, Mexico to the south, the mountains and desert to the east, and Camp Pendleton and Orange County to the north. This means that most future growth will need to come from repurposing existing structures, which often is a slow process involving various city departments, permitting, and zoning issues. This also means that real estate values are almost guaranteed to increase over time, thanks to the ever-increasing demand for existing property.
Think about what will drive demand in your market as we move deeper into the housing market recovery. Depending on that answer, you may be able to predict if your area will be a market leader the way San Diego currently is.
Expert Advice for Homebuyers
Updated Proof of Funds
This is a basic concept but still worth reviewing. If you are planning on being successful in today’s market, you need to be able to clearly show the seller that you are a ready, willing, and able buyer with the means to close the deal. The first step is demonstrating proof of funds in excess of the down payment and projected closing costs. This proof of funds should be a PDF file of your most recent bank statement, investment account, or other liquid cash account. Please do not send a screen shot of your computer screen. That is a big red flag to a smart listing agent because it is typical of what fraudulent individuals try and pull off.
Get a Desktop Underwriter Approval Letter
When competing against cash buyers it is important to make yourself as much of a sure thing as possible in the eyes of the seller. A way to do that is to have Desktop Underwriter (DU) approval from your lender. DU approval is more than just your typical preapproval; it must go through an industry standard underwriting program and be analyzed by a computer program along with your credit score. DU approval is an extra step that demonstrates buyers are organized, proactive, and ready to close escrow.
Realtors® sometimes do favors for their friends and write them approval letters even though their friends don’t deserve them. The DU approval process makes sure this gaming of the system doesn’t happen; it demonstrates the legitimacy of the borrower and the approval letter.
Don’t Overestimate the Power of Cash
Cash is and has always been king, but a lot of homebuyers seem to think they are the only ones that make offers with it. If you are a cash buyer, you need to realize that there are currently many other homebuyers like you; it is not rare for a property to receive multiple cash buyers. Do not expect a big cash-buyer discount or you will find yourself losing deal after deal. The privilege that cash gets you in this market is the likelihood that you will be the one a seller selects once they have narrowed the field down to two or three of the strongest buyers for any particular property.
Include a Cover Letter
Your agent should be preparing a detailed cover letter that clearly lays out the main points from your offer. You want to make it easy to be identified as a strong buyer with an organized and professional real estate agent. Your cover letter can back up your offer and assure the seller that you love the property and will close it given the chance. Also, try and make an emotional connection to the seller; you never know what will break a tie between you and another homebuyer.
Leverage Your Lender
Hopefully your agent has aligned you with an aggressive mortgage professional who understands their role in assisting you to present the offer. The lender should be calling the listing agent to make sure they received the offer, assuring the listing agent that you are solid as a buyer, and answering any questions they may have. If there are 10 offers on a particular home, your lender will make a big impression if they are the only one that follows up with the listing agent. Have your preferred lender call every listing agent that you present an offer to. You can even take the extra step of having your lender shoot a quick introductory video assuring the seller of the buyer’s qualifications and then send it to the listing agent. This can be done right from their desk using their iPhone or webcam and is quick, easy, and effective.
Hand-Deliver the Offer
The art of hand-delivering real estate offers has largely been lost. Have your buyer’s agent shock the listing agent by actually making a face-to-face visit when presenting your offer. It could be what makes you stand out from the crowd. Remember, the seller is not only picking a buyer to work with but also a buyer’s agent. The more professional you and your agent come off the greater the chance for success.
Write a Clean Offer
This is all about focusing on the big picture. You are about to make a huge purchase. Don’t lose the deal by clouding the waters with things like home warranties or other annoying little fees for the seller to pay. Muddling the offer was acceptable in the old market, but now there are plenty of buyers that are making offers free of this sort of thing.
So you, your agent, and your mortgage advisor have done a great job of presenting the offer, and you are feeling good about your chances. This is no time to sit back and relax, however. Make sure that somebody from your team, typically your real estate agent, calls to follow up on the status of your offer. I prefer calls over email because a phone call shows more dedication to the deal. Again, personal touch is key.
Did I leave anything out? If I did, discuss them below in the comments. Happy house hunting!
This guest post was written by Daniel Beer, a San Diego MLS agent that operates a Long Island Brokerage. He has contributed to various real estate blogs and news sites, and shares the tricks of the trade with the public is something that gives him great joy.
Want to know more about today’s crazy real estate market? RealEstate.com recently published a blog post and infographic on the outlook for the U.S. and Canadian real estate markets in 2013.