It is never easy to look for a new home. You pore through all the listings online, shortlist properties that appeal to you, and then take the time to visit those properties with a Realtor® or visit an Open House.  Even when you do find your Dream House, there is no guarantee that your offer will be accepted.  In this seller’s market, many buyers make bids on multiple properties before they win out.  Frustrating, time-consuming, and sometimes, heartbreaking!

There are many reasons why sellers may not settle on your offer.  It may be (and usually is) that the price you offered is too low.  Or maybe they don’t care for the type of financing you are using (FHA and CHFA lenders are notoriously picky about home condition, and frequently require repairs the seller is not willing to make).  

Also Read: Lower your Mortgage Payment

Perhaps another buyer is putting more money down, signaling they are better qualified to secure a loan.  In this spiraling market, many buyers are even waiving the inspections and mortgage contingency requirements!  “Blind” bids, where the seller has a number of offers and calls for everyone’s “highest and best” offer by a certain time, often result in frustration by the buyer as they have no idea what others may be offering.  

So, what should you do as a buyer in a seller market to lock down your dream home? Simple!  Step up your game, and don’t give the other party a chance to break-in.

To help you out, here are 6 tips that work:

Here you will read about:

  1. Pre-Approval for Mortgages
  2. Make Use Of A Realtor®
  3. Put as Much Money Down as You Can
  4. A Quick Closing, & Waiving Contingencies
  5. Offer as Much as You are Comfortable With, But Keep an Eye on That Appraisal
  6. Use of an “Escalation Clause”

1. Pre-Approval for Mortgages

The very first step is to make sure you have preapproval for a mortgage.  This is not the same thing as prequalification, which is based only on what you tell a lender, as opposed to the lender has reviewed your finances and officially stating that you will likely qualify.  A mortgage lender will also make sure he or she takes into account any additional insurance, taxes, and homeowner fees to come up with a payment amount.

2. Make Use Of A Realtor®  

A Realtor® can and should guide you regarding pricing the property.  In the State of Connecticut, a Realtor®’s commission is paid by the seller.  You have a free asset:  use it!  A relationship with a reputable Realtor® can be invaluable.  They know the market, they know what a home will be worth, and they will guide your decision-making process, providing information and options, often options you would not otherwise know about.  In choosing a Realtor®, ask for testimonials or look on their websites for opinions from former clients as to their trustworthiness and competence. 

As in every other profession, there are good and bad actors.  Do a tiny bit of homework and this will pay off for you.

3. Put as Much Money Down as You Can.  

A great way to impress the seller is to make sure your down payment is a little bigger than it needs to be. It will show that you are serious about your bid and you have money for it. 

The money that you deposit along with your bid is called the “earnest money” deposit. If your bid goes through, it is deducted from the money you will be paying; if your bid is not accepted, the money will be returned to you. 

Typically, to show that you are serious, you will write a check in the amount of 1% of the offer price and send it along with the offer.  At final contract signing (usually about 10 days later, after inspections), you bring the total deposit up to 10%.  

The remainder can be financed through a mortgage lender.  Or, to impress your seller, you can opt to finance only, say, 60% of the price and put down another 30% cash at closing.  

Getting back to FHA and VA loans:  they frequently require only a 3.5% or 5% down payment.  These loans are typically used by people who have trouble affording the usual 10 or 20% down.  In a normal supply-and-demand situation, they are generally not a hindrance.  But in this high-pressure seller’s market, they are to be avoided if possible.  The good news is that there are conventional loans available which only need 3.5 or 5% down, not FHA or VA.  A good mortgage broker will be aware of and offer these products to you.

4. A Quick Closing, and Waiving Contingencies

Sometimes if you know why the seller is moving, it can give you an edge.  Do they have a property in the new location in mind already, and do they need to sell to finance their new purchase?  Are these sellers the heir to an estate who just want to sell and get their inheritance money?  Are they a growing family looking to trade up to a bigger home, or older folks looking to downsize to something smaller?

How quickly can you get inspections done? Can you safely waive contingencies like mortgages and inspections?  Can you go straight to the final contract and get that loan process started ASAP?

If you can promise a quick closing, and maybe go straight to contract, that will work in your favor.  Similarly, waiving contingencies such as inspection and mortgage contingencies will also be attractive. 

 Warning!  Talk with your mortgage lender about waiving the mortgage contingency.  You don’t want to waive that right and then find out you can’t get a mortgage after all.  That’s a surefire way to lose your deposit.  Also, you should ask for inspections even if they are for your information only, and won’t require the seller to make repairs.

5. Offer As Much As You Are Comfortable With, But Keep An Eye On That Appraisal

It helps to look only at homes that fall well within your budget.  That way, if you find one you like, you can offer a bit more – in this market quite a bit more seems to be the rule – and still comfortably afford it. 

Yes, you will end up paying more than market price, but it will help to make you a front runner for the purchase.  

A Caveat:  Sometimes, the highest offer isn’t necessarily the best offer.  

The mortgage company will always send out an appraiser to the property to make sure the bank is not financing a purchase that is too high.  That appraiser may say that the property is not worth what you are offering, and the mortgage company will not give you a loan for that much.  It’s rare, but it does happen.

I had a client run into this; they offered a price for a property, in keeping with prices that were being seen in the neighborhood.  The appraiser (who apparently lives under a rock and is unaware we are in a market boom) came in a full $18,000 under our offer price.  We were not able to negotiate a new deal, and my clients had to start looking all over again.  

6. Use of an “Escalation Clause”

An escalation clause authorizes your real estate agent to offer more than the highest bid by a certain amount. For example, if your is not the highest bid, then he or she can go above the highest bid for, say $1000. It is not permitted in all markets; but if it is allowed in yours, this is a way to increase your chances of winning if there is a bidding war for a home.

The downside is that you will end up paying more for the house than you had initially hoped. If your budget is flexible, and you have “wiggle room,” then this is a strategy that may work.

I get it; it’s frustrating to try to prevail when buying is like a game of musical chairs with 5 chairs and 12 people.  It’s hard when homes sell within a day or two of hitting the market.  Annoying that there always seems to be someone with a few more dollars, willing to outbid everyone else.  

But if you can possibly manage even one or two of these tactics, you will have a much better chance of making sure that in about 60 days, you’ll be unpacking boxes in your brand new Dream Home.