Market Update as of July 2021
Buyer activity remains strong as shown in the chart below.
And at the same time listings remain low. While listings have been slowly creeping upward, they rose 23% since last January, they will now need to double to reach the same levels as this time last year. That is not likely to happen as typically listings begin to fall after July.
So this strong seller’s market is apt to continue into next year or longer. What happens next year will largely depend on interest rates. I suspect they may begin to rise at some point in 2022.
Buyers: How to get your offer accepted.
Since it looks like the market will continue on this same track for an extended period, I thought it would be helpful to offer some tricks to getting your offer accepted in this challenging market.
This is an unusual time for buyers and sellers of real estate. The low interest rates are attracting buyers at record numbers while Covid has caused a major reduction in the numbers of homeowners wanting to sell. This has resulted in a very competitive market for buyers and rapid rises in home values.
The average home valued at $450,000 just one year ago, I estimate, is now worth $550,000. That is a 22% rise in value in one year. If this same home was purchased with 20% down, about $90,000, a year ago then that is just over a doubling of the original down payment in just one year. Over a 100% return on investment. Where can one go for this kind of return? It is not surprising so many homeowners are pretty excited about this market.
While buyers will enjoy this rise in values once they become homeowners, market conditions are presenting major challenges for that to happen. For the past 18 months the most popular homes are getting so many showings that sellers are limiting the days on the market to less than a week causing the showing schedule to fill so quickly that buyers often simply can not get into a home in time to see it before the offer deadline. If a buyer is lucky enough to get in and see the home and they like it, their offer is reviewed with 10 to 20 or more other offers.
Notice above I mention these are the conditions in today’s market for the “popular” homes. Less popular homes are still enjoying a great market but activity and interest is a bit less robust. They will see just perhaps only one showing a day and one to two offers a week. From what I am seeing, less popular homes would include manufactured homes, condos and homes/townhomes on tiny lots as well as homes in poorly kept general neighborhoods. Surprisingly, homes that are in less than perfect condition or a bit rougher are still popular with buyers.
Where a buyer is wanting a “popular” home and the market is competitive, there are several measures a buyer can take to greatly increase the chances of their offer getting accepted.
- Have your agent contact the listing agent the last few hours before the deadline to determine
- What is important to the seller. It is not just the purchase price that sellers want. An elderly seller may want a rent-back period so the sale does not fail in the last few hours before closing with all the boxed possessions with nowhere to go. If this has ever happened to you then this will be a priority. A last minute sale fail is especially hard on the elderly. Or a seller may prefer a longer close. If you can accommodate a preference then you will have an edge.
- If the offers moved too far above your budget. If multiple offers are above your budget, it can seem futile to even submit an offer. Before giving up writing, check with the listing agent. You never know if perhaps one thing you can do might be huge on the seller’s bucket list that none of the other offers can do.The most common thing I see is an all cash offer or conventional offer which to some sellers is a priority. I have seen sellers take a lower offer because of the financing or other attractive feature. You never know until you ask.
- Put at least 20% down. This increases the chances your loan will avoid a problem. If possible, put enough down to avoid an appraisal. Check with your lender before their help is needed.
- Submit an all cash offer, if possible. This offers so many advantages to the seller and to you. In this market of rapidly rising values there is always the worry of a low appraisal. All cash eliminates the appraisal. All cash also allows you to close sooner if this is advantageous to the seler. Some lenders will agree to avoid an appraisal with a large down. Check with your lender to see where that is and them let the seller know there will be no appraisal.
- Submit with the offer a loan approval letter which clearly states you are underwriter approved. This offers the benefit of a shorter close and significantly reduces the chance of a sale fail. This along with the ability to contribute cash in the case of a low appraisal allows you to compete with an all-cash offer. Even if you are putting down as little as 5% or less, the underwriter approved letter is huge.
- Offer a larger earnest money, say around 2% or more. It tells the seller you are a serious and confident buyer. If you do back out while breaching the contract, you will have to give up that money so be sure you are who you say you are.
- State in the offer you will request no repairs while still preserving the right to an inspection. If you do find an issue you can not live with then you can give the seller the option to fix or you can back out of the purchase and get your earnest money back.
- Consider this: Sneak into the home with the listing agent’s permission for a “quick inspection” before the offer deadline. Then, if the home passes, write your offer without any inspection at all. That is often a bold and successful move that puts you way ahead of your competition. This allows a seller to know there will not be any major repair issues or any reason you can back out of the deal for an inspection issue.
- Write a “love” letter to the seller. They are misleadingly called a “love letter”. Rather, it is a letter telling what you love about the home and the special story of how you as a buyer connected with the home. These do not usually work but when they do, they are powerful. They are also dangerous. Washington state frowns on them as they may violate a housing rule if they improperly include comments about a protected right such as race, ethnicity or another protected class. Usually it is best not to include them but I have seen them work.
- Use an escalation clause. When you know there are multiple offers coming and you really want the home, naturally you want to submit the highest offer and yet not offer more than you need to win. An escalation clause will work perfectly. An escalation clause basically offers the seller a price matching the highest offer plus an additional specified amount. It works great if the seller will allow them. If they are not completed correctly and carefully they can complicate the offer.
- Communicate with the listing agent moments before the deadline for offers. Some agents will not cooperate with this approach but if they will and you are intent at making the best offer then this is a powerful way to go. Ask what is important to the seller, if they will accept escalation clauses and tactfully ask where the other top offer is in price. Tactful is the operative word as listing agents usually want the best offer and yet will usually prefer providing hints rather than full disclosure.
- Make the offer during or within just a few days of a major holiday. Reference the chart above. Notice the decline in buyer activity around the time of 4th of July. After the holiday buyer activity zoomed right back up. With luck that one buyer that would have beat you with a higher bid might have been away on vacation during that holiday.
- If you are a buyer with the option of an all-cash offer but do not want to use your cash for the purchase, I suggest you go ahead and buy with cash and then refinance. This often will allow you to get a better deal even though it is a bit more pain and hassle.
- As a buyer, paying more than the list price is painful. I totally get it. Perhaps knowing that properties are appreciating at over 20% in a year can help with the sting of today’s prices.
If you have questions about the market or other real estate questions, please write or give me a call.
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Chris Kelsey, Keller Williams