Being out-bid on a real estate purchase sucks!
They accepted another offer, what happened? In many communities, SW Florida being no different, the market has “shifted” quite dramatically over the past couple of years. Inventory levels are low and buyers who have been on the side lines for the past few years are now back in the game. We have had many clients who, in the past few months, have had their (reasonable) real estate offer looked over for another. Some can blame themselves for not heeding our advice by submitting a lower offer than suggested, but many did submit strong offers and in some cases over the asking price offers. What happened and how do we learn from this?
Along with a robust sellers market (in our area), approximately 50% of single family home transactions and about 65% of condo transactions are cash. You’ve heard that “cash is king”, well cash may also be the norm (at least in our area). But not everyone has the means to pay cash. Luckily, there are a few tips to help your real estate offer stand out.
1) If possible, use conventional financing over FHA/VA
VA is a great loan for 100% financing and FHA, with 96.5% financing, has it’s place in the financing world; but if you don’t need the 100% of VA and/or you can put together at least 5% for a down payment, you may qualify for a conventional loan. Whether it’s right or wrong, government loans do have a bit of a “stigma” to them; more “hoops” and more that can go wrong. Conventional loans have fewer “hoops” than FHA/VA loans, and fewer things that can go wrong. If you look at your real estate offer “through the eyes of” your seller, an offer with conventional financing looks better than a FHA/VA government loan. Oh, by the way, the closing costs are lower on a conventional loan vs FHA/VA.
2) Consider an equity line from an existing home.
If you have an existing home with enough equity to cover the purchase of the new home, using the equity from the existing home may be a consideration. By pulling the equity out of the existing home ahead of time, you can make your offer a “cash” offer. All things being equal, a cash offer will “trump” a financed offer.
On many occasions, I have had clients who were looking to purchase the new home with a purchase mortgage loan, and planned to sell the existing home in the near future. After selling the existing home, they planned on paying off the new home mortgage. These people are perfect candidates for this. In addition to being able to make a cash real estate offer on the new home, the closing costs are lower on an equity line than a purchase mortgage.
3) Look for that “not so perfect” home.
You may have luck (if you are handy) looking for a cosmetically “ugly” home. It amazes me how many people don’t want to lift a finger improving a home; looking for “move-in ready”, and paying a premium for it. They will look right over a great home that needs some cosmetic correction, and one less person interested in the home gives you a little more chance to win the real estate offer war. In a seller’s market, the selling price of the “perfect” home can be pushed up with strong and multiple offers, many times well past their appraised value. Trust me, a “cosmetically challenged” home will appraise very similarly to a freshly painted perfect one. A new coat of paint, new floor coverings, or minor work are an easy (and not very expensive) way to change the look and improve a home; AND may gain some instant equity.
4) Other ways to make you offer stand out
There is more to a real estate offer than just the purchase price, and there are a few things to consider to make your offer stand out.
– Inspection date – The default time frame for the inspection contingency is 15 days. This is way more time that what is typically needed for the average home. A shorter time frame will make your offer on a home more appealing to the seller for a variety of reasons.
– Close date – Carefully considering the close date can also make your offer stand out. Typically with a vacant home, the quickest close date possible it the more attractive one; an occupied home may be more complicated and your agent should call and ask about the seller’s situation.
– Initial deposit – The initial deposit (sometimes called the earnest money or “good faith” deposit) can also make your offer stand out. A larger deposit tells the seller that you are serious because a large deposit would be difficult to walk-away from.
– Percentage financed – The amount or percentage of the purchase price that will be financed can help an offer on a home look a bit stronger. Being able to finance a lower percent of the purchase price (IE: 60%, 70%, 80% vs 90%, 95%) gives the impression that you are well qualified and a stronger buyer.
– Special contingencies – Special circumstances contingencies (contingent upon selling existing home) may be necessary, but if not, should be avoided.
If you get beat out by another offer, keep trying. Make sure you have everything ready to go (IE: pre-qualification letter, proof of funds, initial deposit) and be ready to pull-the-trigger!