If you are ready to buy a home and find yourself in a multiple offer situation, here is what you need to know.
You're Ready to Move From Tenant to Home Owner
So you are finally ready to take the plunge and move from renting to home ownership.
You have been renting for a while; you feel good about your job security and your relationships and think now is the right time to switch over to home ownership. You have done your research and want to take your time to find just the right home.
You have it all planned out and then...
Oops...hold on...what?!!! Now, the market is a Seller's market! When did that happen? All of your planning and strategizing is now out the window because your real estate agent is telling you to move fast, make a quick decision and offer above list price! Are you kidding me?!
Ok, let's slow down and get educated on what it means to be in a multiple offer situation.
How Did the Market Become a Seller's Market?
Let's start with the economy.
When the economy went downhill in 2008, construction slowed and people were not moving. Without job stability and with student debt, it was safer to rent than to buy and home builders sat on the sidelines. Many homeowners lost their homes to foreclosure, short sales and bankruptcy and, therefore, the quantity of renters drastically increased.
Now, 7 years after the start of the downturn, we are well into our recovery. People are tired of renting, student debt has been paid off or consolidated, jobs are stable, credit is being restored and households are forming. People are getting married, having kids and aging and want to get out of their rental properties and move on with their lives. It is time to put down roots and enjoy all of the benefits of homeownership.
However, not many new homes were built in the last seven years so demand is outpacing supply in many areas. And that is why it is a Seller's market in certain communities and neighborhoods. Everyone wants to live there - the convenient neighborhoods with good schools, open spaces and affordable pricing.
So get ready to compete for that home of your dreams.
Advice For Dealing With Multiple Offer Situations
Here's what you need to know:
1. Find a Great Real Estate Agent With Local Knowledge
Find a great real estate agent who really knows the local market. Not a good agent, but a great agent. Local is so important. You need an agent who has the "inside scoop" on what is coming on the market, what is on the market, and what is happening in the neighborhoods where you want to live.
You want to find a local expert on school boundaries, road contraction, rezoning, homeowner's association rules, neighborhood disputes, and more. Your agent should "add value" and know more than what you can find on Zillow. Choose wisely. Get referrals and don't just call the agent who advertises on Zillow and Trulia. Do your homework and interview her. When you hang up the phone after the initial phone call, you should know whether this is the right agent for you.
In a Seller's market, you need great representation if you really want the house of your dreams.
2. Find a Great Real Estate Agent With Real Estate Experience
Once you find a great local agent, make sure that he/she also has experience in real estate, especially during Seller's markets. Your agent needs in depth experience with contracts, negotiations, lenders, inspectors, title people, and more. Real estate expertise matters because you may have to move fast and you will need a great team that can get you to the closing table as seamlessly as possible. You all need to be on the same page and your real estate agent is your point person.
3. Become an Educated Real Estate Buyer
Your real estate agent should be able to educate you on certain real estate terms and clauses. However, you also need to do your part. So, get educated and partner with your agent on those clauses that you need more clarification on:
- What is an escalation clause? That is when you "escalate" your offer a certain amount above any other proven offer. However, clauses can vary so speak to your agent.
- What is a 72 hour kick out? If you go in contingent on the sale or settlement of your home and the owner wants to "kick you out" if he/she gets a non-contingent offer that he can prove. The terminology can vary widely so this is definitely something you need to understand thoroughly.
- What is a backup contract? The home you want is under contract but you agree to be a backup in case offer #1 falls through. What does this mean to you? If you are a backup contract and you find another home that you like better, can you get out of the first transaction?
- Should you drop your inspection clauses? Maybe. There are pros and cons to this and it depends on the type of home and how badly you want it. You definitely want to understand this thoroughly before you agree to it.
- How much deposit should you put down? A higher deposit makes you look good and gives the Seller "peace of mind" in case you walk away. But how much is too much? And does it really make a difference?
4. What Kind of Offer Should You Make For the Home of Your Dreams?
Should you offer above list price? Maybe. This is where you really have to trust your real estate agent, your research and know what you want.
- Do you love the house? Is it one of a kind?
- Have you been looking for a while?
- Is there a very short supply of homes that meet your needs?
- Do you know what other homes have been selling for?
- Is this the home of your dreams? Do you just know it in your bones?
Then go for it. Find a reasonable way to get it. If you can afford to go above list price, do it. Work closely with your real estate agent to make your offer as strong as possible. Since so much about buying a home is emotional, the relationship between you and your agent really needs to be built on trust. Your agent should be the logical, unemotional balance to your emotional side. And it all starts with trust.
5. Set a Walk Away Price for the House
Know your walk away price. Multiple offers can get crazy and your adrenaline will be high. You may not have time to think clearly and it can get very emotional. Know your walk away price. Write it down and stick to it.
Ask yourself, "If I pass on this home and find out that the home sold for x, will I kick myself?" Know what is the price that if you lost the home, you would not be upset.
6. In a Multiple Offer Situation, Be Ready to Move Fast
Be prepared to move fast. In a multiple offer situation, timing will be dictated by the Seller. You do not have a lot of leverage. So get ready for a crazy ride.
- Can you settle in 3 weeks? Maybe.
- Can the seller rent back the home from you? Maybe.
- Can you put down a second deposit? Hmmm... maybe.
Hurray! You Have Successfully Bought the House of Your Dreams!
Congratulations! Yes, it was stressful and did not go as you had originally planned. But you are in your new home and can now enjoy all of the benefits of home ownership. Did you pay too much? Maybe. Did you feel rushed? Yes. But that is sometimes the way it is and you will be in this home for a while. Time to build happy memories, make the home your own and relax.