Buyers in DC's competitive real estate market will likely find themselves in a multiple offer scenario. It's a stress-inducing situation...you've finally found the perfect listing, and now lots of other buyers want it too! What's the best way forward? First off, it's important to understand how most multiple-offer-scenarios play out.
Often times, when the listing agent feels confident there will be more than one offer, they will set an offer deadline. The deadline gives potential buyers a chance to huddle with their agent and lender to make their best possible offer, which is oftentimes referred to as "highest and best" in the real estate industry. Writing a winner offer is simple...offer more than the asking price, all cash, with no contingencies, then make sure to close whenever the seller wants. No problem, right?
For buyers living the realm somewhere between Scrooge-McDuck-money and flat-ass-broke, writing your best offer is all about good planning, some educated guesswork, and taking reasonable risks. In short, you'll want to do everything within your power to shorten or eliminate contract contingencies. The most common contract contingencies are: Home Inspection, Appraisal, and Financing
Home inspection contingencies are commonly structured in one of two ways:
Option a) After the inspection, the buyer either has the right to negotiate on inspection items or cancel the contract.
Option b) After the inspection, the buyer JUST has the right to cancel the contract.
If you're willing to accept a property with a few warts, then writing a contract with just the right to cancel will strengthen the offer. By taking the right to negotiate on home inspection items off the table, the buyer is signaling that they're not going to nickel and dime the seller with repair requests.
A third and increasingly common option for buyers in very competitive sub-market is to complete a "pre-inspection." In the scenario, the buyer completes an inspection before even writing an offer with the plan to write an "as-is" offer which is not contingent on a home inspection at all. A pre-inspection allows the buyer to offer a price with eyes wide open in regards to property condition while also mitigating some risk. The obvious downside is that the buyer is paying to inspect a property where they don't have a contract; many savvy agents and buyers consider pre-inspections the cost of doing business in a seller's market.
Making an offer well above asking price may make sense, but that high number isn't going to carry weight if the listing agent isn't confident the buyer can actually close. There is a lot to think about in today's loan market. Make sure to have a relationship with a reputable lender and agent ahead of time and take the time to fully understand your options in regards to appraisal. Talk to your lender and agent in regards to either shorten or potentially eliminating the appraisal contingency. Work with your agent to understand what similar properties are selling for nearby. It's not an educated risk that's right for every buyer, but when you're trying to stand out from the crowd, removing the appraisal contingency can make the difference.
Loan options vary, and making an informed decision depends quite a bit on how long you plan to hold the property. Adjustable Rate Mortgages (ARM) sound scary to some buyers but if you're only planning to hold the property a few years, they will allow you to secure a lower rate for a set amount of time. The key point is you'll want to know which loan options are best for your particular scenario. It's important to understand how much money you'll need for your down payment and closing costs, as well as have a backup plan if you run into an appraisal issue. For example, if the appraisal comes in low, can you still make the financing work? For some buyers with deep pockets, paying slightly over fair market value is worth it to get into that perfect property. In today's market, certain buyers consider waiving the financing contingency even though they plan to use a loan to finance the purchase.
To sum it up, the more uncertainty you can eliminate for the seller, the stronger your offer is going to be. Some additional ideas to consider when making your best offer are being flexible on the closing date, offering the seller a free-rent back where they can stay an agreed amount of time post-settlement, or even writing a heartfelt letter that may appeal to the seller's softer side (if they happen to have one).
It's competitive out there and the advice of an experienced professional is invaluable! Contact us today to schedule a no-obligation buyer consultation.