Buying your first home or trading up for your next one is an exciting experience. You browse listings, visit open houses and try to imagine yourself living in a whole new space.
Yet when housing inventory and interest rates are both at historic lows, that can make for a housing market that’s more frustrating than exciting. Increased competition for a limited number of homes for sale tends to drive up prices and lower the chances of having your bid accepted by the seller.
While you can’t control mortgage rates or the quantity of listings, there are several steps you can take to be in the best position possible to earn that coveted accepted offer.
Here are the top 10 DOs and DON’Ts for homebuying in a competitive market.
DO get a preapproval from a reputable local lender.
When faced with options, property sellers want to know that the offer they accept on their home is not going to fall through. That’s one big reason why an all-cash offer is so attractive — even if the final sale price is lower than a financed offer. If you can’t come in with a full cash offer, the next best thing you can do is line up your financing in advance to offer as much peace of mind to the seller as possible. Providing your preapproval documentation shows you’re serious.
By completing your mortgage application before you begin shopping, you’ll also get a better idea of how much house you can afford. Don’t waste time looking at properties outside of your price range, especially when it’s so easy to apply.
When you’re ready to get started, head to our mortgage lending page, where you can request a consultation with a mortgage lending officer, do more research and submit your application.
DON’T offer below asking price
When markets are less competitive, you may be able to make an initial offer and work with a seller through negotiations and counteroffers, especially on a property that has been on the market for a while.
A hot market flips that scenario on its head.
When inventory is low, houses are often selling in days and in some cases hours. Rather than negotiating, a low offer will likely just be rejected.
When there are multiple parties competing on the same property, present your best offer up front. You can build common stipulations into your offer, such as a home inspection, to provide you protection and help make sure you are getting what you pay for. Should an inspection reveal previously unknown issues, especially issues that would need to be disclosed to other buyers if you decide not to go through with the deal, you could negotiate the price further.
DO work with a reputable realtor
When choosing a realtor partner, don’t take the path of least resistance. Do your research. Some real estate agents specialize in buying homes rather than selling them. Find a buyer’s agent to represent you. You also want an agent who has a lot of recent experience finding homes and working with listing agents — and one who specializes in your desired neighborhood.
A successful buyer’s agent is someone who historically does lots of business and is likely affiliated with a larger brokerage. If they’re active in your sought-after neighborhood, they will have relationships with the listing agents in those areas, too. Your realtor’s reputation can also be considered by sellers and their agents. The best agents are often aware of homes before they come on the market, allowing you to act early and quickly.
Still not sure how to find an agent? Check with your lender. Your CoastHills Mortgage Lending Officer would be a great place to start. The Credit Union’s loan officers work with local realtors every day and have recommendations for you up and down the Central Coast.
DON’T ask for closing costs to be paid for by the seller
Just like not making a “below-asking” offer, a seller’s market is not the time to ask for your seller to shoulder the closing costs for you.
In a buyer’s market, building closing costs in to the sales price is one tactic you can use to save money, but in these market conditions, all that will do is make your offer less attractive to the seller.
Chances are another party is making the same offer you are without that stipulation, and the seller is likely to favor the contract that includes fewer demands, especially when they have the leverage of multiple offers.
DO plan to supply your proof of funds
You have your preapproval letter included in your offer. What else can you provide to prove to a seller that financing will not hold up the deal? Start with a proof of funds.
If your offer states that you are financing the purchase with your local Credit Union and putting 20% down, it may help to show the buyer where that 20 percent down payment is coming from. If it’s deposited in an account somewhere, be prepared to document the source and present it in your offer.
Is the down payment contingent on the sale of your current home? That’s another reason why a cash offer may be more attractive. A seller might not want to wait for your house to also sell before completing the transaction. This leads to the next DON’T.
DON’T make your offer contingent (if you can help it)
This is not a hard and fast rule, and there are plenty of situations where you may not be able to follow it, but if you can help it, try not to make your offer contingent on the sale of your current home.
Perhaps this means selling your home first. Maybe it means finding temporary housing after your home sale. You might even be able to sell your house with a rent-back option that allows you to stay until you close on your new home.
In a competitive bidding scenario, contingent offers are less attractive for the simple fact that there are more chances for things to go awry. Say your home purchase is contingent on the sale of your home, which is contingent on the sale of another home that is contingent on another. The string can and does go on and on sometimes, and if just one of those deals falls through, it can cause the rest to cascade into failure.
If you must make a contingent offer, combat any negative perception by providing the listing of your house, viewing activity and any offers received, the location, the price, documentation showing how much it’s worth and how much you owe on it. Work with your realtor to prepare comprehensive information.
DO respond to your lender’s requests as quickly as possible
During the home-buying process, there will be times when your lender will need you to provide a document, sign a form, answer a question, etc. Get those requests fulfilled immediately. In meeting your escrow date, time is of the essence, and you don’t want your sale held up over something as simple as a missing document.
It’s a great rule to communicate every development with your lender. Let your lender know when you are making an offer on a house. Let your lender know when an offer is accepted. There are wheels that need to go into motion when major developments happen in your purchase for you to be able to complete your mortgage loan.
At CoastHills, your mortgage loan officer will be your main point of contact. Keep their email and phone number on file, so you can check in when needed.
DON’T request an escrow over 30 days
Like a lot of the DON’T’s on this list, in a competitive market you want to avoid doing things that make your offer less attractive to a seller, and odds are good that other buyers will request the most common escrow period of 30 days. Some may even try to improve their chances by offering a 25-day escrow, especially if they are making a cash offer.
A longer escrow does give you more time to get your pending home sale complete and make your moving arrangements, but in a seller’s market, shorter is better.
DO consider requesting an early rate lock
If it looks like rates will rise before you have completed your home purchase, check with your lender about locking in your interest rate as soon as you have an accepted offer.
There have been times when a borrower has been preapproved at a specific rate only to see their final rate rise by the end of the buying process. That can take a toll on your monthly payment and could even lower the total amount you are approved to finance.
CoastHills offers you a rate lock as soon as an offer is accepted, something not every lender does. Some may not lock your rate until the appraisal and/or inspection is complete and everything is approved. Should rates instead decrease, CoastHills will also allow you to float down to that lower rate.
BONUS DO: Write a personal letter to the seller
In the end, few sellers are going to turn down the profit or convenience or a higher price or a cash offer, but if the offers are close, adding a heartfelt personal touch could set your offer apart from competitors.
Write a letter to the seller telling your story. Will this be your family’s first home? Is there an aspect of the property that truly appeals to your children? What sentimental value can you express to the seller to let them know how much you appreciate their property and their consideration?
Attach a photo to your letter and work with your realtor to deliver the letter.
Giving the seller a window into your life could help the decision and the transaction feel more friendly. If a competing offer includes one of the DON’Ts listed above that may turn off a seller, your friendly letter is just one more reason for them to choose yours.
One last thing to remember, anytime you make a decision impacting something as personal as where you will plant roots, it can be an emotional process. Still, if you don’t get the house you fall in love with, try your best not to get discouraged. Be patient. The home that’s just right for you will come along.