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If you’re looking to buy a house in 2021, you already know that prices are high, inventory is low, and competition is fierce. Whether you want to buy in Austin, Denver, or nearly anywhere else, it’s more difficult to do so now than even a year ago.
Some markets, such as Austin, are particularly hot: Homes remain available for just days, if not hours, rather than weeks or months. People are going well above asking price, making offers without touring the home, and going incredible lengths to convince the seller to choose their offer — including, reportedly, offering to name a child after them.
If you have your heart set on buying in a hot market, what can you do to improve your chances of winning the home of your dreams? In these crazy times, nothing is guaranteed, but that doesn’t mean you should approach home buying by just closing your eyes and wishing for the best.
We asked some of our in-house experts for advice on how to win a bidding war when the market is hot. Here’s what they said.
1. Consider waiving the appraisal contingency
In general, a home sale contingency is putting some sort of condition that needs to be met in order for the deal to go through. There are different types of contingencies, but one that is commonly waived in a hot market is the appraisal contingency.
An appraisal contingency is when the buyer says that if the appraised value of the home is lower than the purchase price, they can negotiate the purchase price or walk away at no cost.
Some contingencies may make sense to a seller, even in a seller’s market. This is one that they can do without.
“In a hot market, most homes are selling for more than the appraised value,” says Peter Winscott, an agent and team lead at Orchard. That means that most sale agreements with an appraisal contingency would potentially fall apart.
“[Waiving this contingency] helped one of our Austin agents beat out 20 other offers,” says Winscott. “In general, we’re suggesting making the offer terms as favorable to the seller as possible — while still being financially responsible.”
That last part is important. You can also choose to waive other contingencies, such as the home inspection contingency, but that’s a riskier option. If you skip the inspection contingency, purchase the home, and then find that the house has serious issues, you may end up paying much more than intended to make it the home of your dreams.
2. Demonstrate financial security by putting down more cash
The amount of money that you put down when bidding on a house, versus the amount that comes via a home loan, can absolutely make a difference to a seller, especially in markets where the amount of money you put down is disclosed.
“It absolutely matters how much a buyer is putting down because it speaks to their financial strength and perceived credit risk,” says Winscott. “On a $500,000 offer price for a home, Buyer A putting down $250,000 in cash is viewed as more favorable than Buyer B putting down $100,000 in cash. The main reason is because buyer A only needs to finance 50% of the home's value whereas Buyer B needs to finance 80%. Credit risk is definitely a factor.”
Sellers with many potential buyers will likely want the surest bet possible, and that means people whose offers are less likely to fall apart based on a loan not being approved. The more cash you can put down, the better — a theme we’ll revisit in tip #5.
3. Be decisive and move quickly
No one likes being told to hurry up and make a decision, especially when that decision has enormous financial and emotional consequences. But in a seller’s market, if you see a home that you love, it’s important not to delay.
“When they find the home they love, they’ll need to act quickly,” says Jeremiah Jackson, a regional sales manager and Realtor in Houston. “In Houston, the average days on market is only 36, which is 39% less than what it was just one year ago.”
This isn’t just the case in Houston. Michelle Ziesch, a Home Advisor for Orchard in Colorado, agrees.
“I wish my clients knew how quickly they need to be prepared to make an offer in a seller’s market. You need to be emotionally, financially, and physically ready to make an offer right after seeing a home or else be okay with losing out to another buyer,” she says.
If you’re out looking at homes, bring along your house hunting checklist to compare what you’ve seen. But if you spot a winner, know that going home to consider your options might mean you need to start the whole process over again the next day.
4. The more your agent knows, the better
You need to have complete faith in your real estate agent during what’s bound to be a hectic process. Keeping them informed of what you’re willing to do or spend to get the house you want will make them better at their jobs, and more likely to secure the deal.
“If you tell us your maximum buying budget, we’ll be able to negotiate faster and more effectively,” says Ziesch. “We won’t reveal your budget to the listing agent, but this means I don’t have to call my client 10 times as I go back and forth with the other agent.”
Similarly, let your agent know what factors or features are non-negotiable for you, and which are just nice-to-have. This will allow your agent to find more potential matches in your home search, and to turn down ones that don’t fit the bill.
Cut down on the back-and-forth between you, your agent, and the seller or their agent. Give your agent the information and power they need and they’ll help you win, plain and simple.
5. Don’t let cosmetic issues stop you
In your search for your dream home, you may have a certain image in your mind of where you want to live next — and that image might not have cosmetic issues like problems with the paint or flooring. Don’t let little things like that stop you from making an offer, says Courtney Anthony, a manager at Orchard and a certified luxury home marketing Realtor in Dallas-Fort Worth.
“Paint, flooring, countertops, these are relatively easy to update and don’t typically cost as much as you’d pay for a home that was ‘perfect,’” she says. “Then, you get to make the home exactly what you want.”
If there are significant foundation or plumbing issues, or other structural changes needed, that’s a different and more expensive story. But little problems that you can fix on your own are not a reason to walk away in a seller’s market.
6. Offer the seller a leaseback, if they need it
People selling their home often run into a problem: They may not have a place to live after their house sells. If they don’t have their next home lined up, you can offer them a concession that may sweeten the deal.
“Offering a free or low cost lease back to the sellers can help win in multiple offer situations,” says Anthony. “Most sellers that are building or have to sell before they buy their new home will need a leaseback. This can be very difficult for customers that are buying and selling the traditional way because it will likely require multiple moves.”
Services such as Orchard’s Move First helps eliminate this issue, but if the seller is going to need a place to stay for a bit, consider allowing them use of your soon-to-be-new home.
7. A cash offer beats a financed one
Not everyone can bring an all-cash offer to the table when bidding on a house, which is why home loans exist. In a buyer’s market, FHA loans and VA loans are perfectly useful and widely accepted tools to help folks buy a home. But in a seller’s market, “financed” offers like these are less competitive than bringing cash to the table, for a couple of reasons.
“Any financed offer is typically seen as weaker than a cash offer, especially in a seller’s market,” says Winscott. “The other reason is that offer acceptance is almost always based on the offer price.” And if you can’t come with additional cash out-of-pocket alongside your loan, it’s going to be more difficult to compete with those who can. For financed buyers, it’s extremely important to have an experienced agent that can help in writing creative offers.
So, while it’s easier said than done, if you’re able to offer cash, do it. In some contexts (though less so in a seller’s market), a cash offer can actually save you money. If you need help, consider Orchard’s Offer Boost service.
The bottom line when it comes to buying in a hot market is that you need to make your offer as competitive and uncomplicated as possible, and you’ll need to move as quickly and decisively as you can. If you do all that, you’ll be in better shape than many other home buyers at this stage.