How To Beat Out Other Buyers in a Competitive Real Estate Market

It’s official: The housing market is about to heat up.

With interest rates easing, more prospective homebuyers are likely to enter the market. That means buyers will have to be competitive and creative to beat out other bids.

“Though falling mortgage rates are sure to entice some homebuyers, the vast majority—about 86% of existing mortgages—have a rate of 6% or lower. And 3 in 4 outstanding mortgages have a rate of 5% or lower,” says Realtor.com® senior economic research analyst Hannah Jones.

“This means that buyer demand will likely trickle in as rates fall, but many homeowners may still feel ‘locked in’ by their current mortgage rate until rates fall further.”

Last week, the Federal Reserve delivered another interest rate cut—down to 4.25% from 4.5%—but it won’t deliver any immediate relief for mortgage rates.

The cut was widely expected by investors, and it is already largely priced into the long-term bond markets that ultimately determine interest rates on home mortgages. For the week ending Dec. 19, rates for 30-year fixed mortgages ticked up to 6.72%, according to Freddie Mac.

For the past 12 months, mortgage rates have moved between 6% and 7%, but homebuyers are “slowly digesting these higher rates and are gradually willing to move forward with buying a home, resulting in additional purchase activity,” according to Sam Khater, Freddie Mac’s chief economist.

As a result, the housing market is not stuck in its usual December deep freeze.

“We see some indicators possibly reflecting an end-of-the-year uptick in activity as both buyers and sellers look to close on the purchase or sale of a home before the new year,” explains Realtor.com senior economist Ralph McLaughlin in his analysis.

And homebuyers who are ready to step off the sidelines to lock in a deal should consider being prepared.

How To Beat Out Other Buyers in a Competitive Real Estate Market

Be prepared with pre-approval or full underwriting

Experts agree that one of the best things a prospective buyer can do is to ensure financing is set before an offer is made on a home. That doesn’t mean simply gaining a verbal pre-approval, but having all of your paperwork and ducks in a row.

“Having a fully underwritten pre-approval shows the seller they are serious buyers,” says Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate Mortgage. “Many buyers get a basic online approval without documents verified.

“This is a higher-risk situation for the seller as they don’t know if the buyer really qualifies. The fully underwritten approval is as close to cash as you can get,” Beeston adds. “It doesn’t cost a buyer anything to get a fully underwritten approval, so make sure you are using a lender that will put in the work to give you the best shot at winning.”

These days, most mortgage companies can get you fully approved within 15 days, which gives you more leverage. Better yet, you could also get fully approved for your loan rather than wait.

“I recently experienced this firsthand with a property we renovated and sold in West Palm Beach, FL,” says Ron Myers, president of Ron Buys Florida Homes in Wellington, FL.

“We had the house on the market for just over 30 days and received two full-price offers. At first, we thought we might be headed for a bidding war. One buyer was even willing to increase their offer by $5,000 over asking, which is great. But here’s where things got interesting: While the higher offer was tempting, the other buyer had something even more valuable: They were pre-underwritten by their lender. Their financing was essentially locked in, and all they needed was to find the right property to close on their loan.”

Plus, this kicker: The lender could close in just two weeks.

If you can offer all cash, consider it

“Cash offers are very appealing because they eliminate the uncertainty of mortgage approval, making the transaction faster and more secure,” says Leah Robinson-Christian, an associate broker with Engels and Volkers Atlanta.

Another way to beat out the competition is to set up an escalation clause, which allows buyers to put a bid in, but then increase that bid based on what other offers come in.

“For example, a buyer could offer $600,000 for a home and add in a clause that says they will go $1,000 over the highest offer at a price not to exceed $625,000,” explains Ellen Qian, real estate agent at One Realty Global in New York City.

Flex your flexibility

Experts agree that demonstrating flexibility will help homebuyers get ahead, like offering to cover closing costs or allowing the seller to pick the closing date.

“It’s all about making the seller feel more confident that the deal will go through without any problems,” says Levi Rodgers, co-founder of VA Loan Network.

“Be willing to compromise on your must-have list, focusing on your top three to five priorities, rather than expecting every item to be checked off,” he adds.

Consider selling your home before buying

It also helps if there’s flexibility around a move-in date.

“Back in 2020, when homebuyers were fiercely competing, I had a client offer a seller an option to live in the home for 60 days after closing at no charge. This really made my buyer’s offer stand out from the rest,” says Jason Gelios, a real estate agent based in Birmingham, MI.

“A seller has no idea if you will sell your current home or when. They have no incentive to wait around and hope it happens. When you come with no or limited requests, it makes it easy for them to choose you over the other person that mandates 800 repairs and then some,” says Chantay Bridges of eXp Realty in San Ramon, CA.

“You cannot take your time or be slow-moving either. When your Realtor® advises you we need to move quickly on this one, that means now,” adds Bridges. “Have your ducks all in a row.”

You can also show you’re serious about the home by limiting the timeframe of your financial contingency or waiving it entirely.

If you can waive the appraisal, that could be a game changer, says Amanda Lynn, a real estate agent with Nest Seekers International. “This strategy works best when buyers have the financial capacity to absorb any shortfall between the appraisal and the purchase price.”

But don’t go too far

As much as it might be tempting to agree to forgo an inspection to get the home you want, buyers should still make sure to do one.

“It’s just too risky and could lead to costly surprises later on. Skipping these protections might win the bid, but it could also leave buyers facing expensive repairs,” says Dave Flanders, the owner and founder of HomeVisors, based in Burlington, CT.

That said, another way for buyers to look more attractive is to offer to take on any repairs the report might highlight.

“If [other offers] require 20 repairs and you ask for only one, who is deemed more favorable to a seller?” asks Bridges. “Sellers, too, are seeking a deal or an increased amount in the end. Buyers have to be willing to give a little or ask for less.”

Sweeten the deal

Aside from being flexible, there are numerous things you can do to help sway a seller your way, says Paige Elliott of Dave Perry-Miller Real Estate in North Texas.

“It can be particularly important for people who have a bond with their homes that they write an undertaking letter, as the emotional touch will create attachment on both ends,” says Andi Cheung, an executive with Playa Real Estate in Playa Del Carmen, Mexico.

“I once had a buyer write a heartfelt letter to the seller explaining why they loved the home, and it worked,” says Flanders. “The letter created an emotional connection. This personal touch made the seller feel like the home would be well cared for by the new owners.”

Qian says she’s also seen writing a personal appeal to be effective.

“One couple I worked with fell in love with a property that had multiple offers. They not only offered over the asking price but also included an escalation clause. They took it a step further by writing a personal letter detailing their love for the house and the neighborhood, which really connected with the sellers. Ultimately, they won the bid, and the sellers told me the letter was a deciding factor.”

However, any notes should be passed on by a real estate agent to the owners.

“The buyer should not approach the seller directly as that could be seen as intrusive and uncomfortable,” says Robinson-Christian.

 

For this and similar articles, please visit Realtor.com

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