Making an offer in a seller's market is particularly challenging, especially in Chicago. Learn how you can make yours stand out!
It's a seller's market these days in many parts of the country. Home prices are rising, and people have to put forth their most competitive offers possible to have any hope of snatching up one of these lovely Chicago-area homes. The question for many buyers is: how do I make my offer stand out? That is, how do I make my seller's market offer rise to the top of the pile and be the one that the seller selects?
The good news is that most people can make their offers stand out if they do a little bit of prep work beforehand. Here's what you need to do to make your offers a strong as can be!
The number one thing that you must do to hope that the seller will accept your offer in a competitive market is to have a pre-approval. This piece of paper is vital to ensure that the seller considers your offer to be serious. Without a verified pre-approval, the seller will assume that selecting you as the homebuyer will be a risky proposition.
Fortunately, obtaining a pre-approval is relatively straightforward. You merely need to go to a lender's website and request one online. You'll typically need to fill out some basic information and they'll run a credit check. Once they do that, you'll receive a pre-approval letter, which you can then showcase in all your offers.
If you need assistance in choosing a lender, your real estate agent will be more than happy to help you out!
One other way to make your offer stand out in a seller's market is to include as much earnest money as possible. Most sellers put down 1%-2% of the home's value, but if you want to knock the socks off a seller, put down something more like 5%. That will show the seller that you mean business when it comes to getting this home.
It's also (relatively) risk-free as you still have all your contingencies in place to protect you. As long as you have those in place, you can still walk away from the transaction if there's something wrong (e.g., you cannot obtain a loan or the home doesn't pass inspection). So, if you have access to the funds, put some extra earnest money down! It's a fantastic good-faith gesture that will make your offer pop with the seller!
Offers can be convoluted, and you can ask for numerous things on them. For example, you might ask to have the seller help with some closing costs or ask them to include the appliances with the house.
In a seller's market, there's little room for that type of negotiation. Therefore, make your offer as clean as possible. It should be as simple as, you will pay this amount of money for the house, no concessions, no requests.
Another way to make your offer as clean as possible is to remove as many contingencies as possible. There are typically four contingencies: attorney, appraisal, loan, and inspection.
You will almost always need an appraisal (if you're getting financing), and you should always have an attorney review and approve your purchase agreement.
That leaves two possible contingencies that most people could, in theory, drop: loan and inspection.
For the loan contingency, it's possible to go through the entire underwriting process before you make an offer. The bank could say, let's suppose, this person is trying to buy a $500k home. Let's go through the entire underwriting process and fully approve the loan.
Then, you can go out and offer up to $500k with no loan contingency as you can be 99% certain it will receive approval!
Similarly, you can sometimes waive the inspection contingency if the seller has one done from a reputable source and will give you a copy.
By dropping those two contingencies, you can make your offer stand out!
This one is a no-brainer, but the more money you agree to pay for a home, the higher the chance of offer acceptance is.
There are typically two reasons why buyers get spooked about offering above-market prices. First, they're worried the home won't appraise, and the deal will fall through because they won't have enough money down then. That's what the appraisal contingency is for, though! If the home doesn't appraise, you can always walk away from the deal.
Second, buyers are frequently concerned that their monthly payment will change if they offer a price above asking. While it is true that your monthly payment will go up, unless you're offering significantly above the asking price, it won't change too substantially. Remember, you're probably spreading that cost over 15-30 years.
Your real estate agent can help guide you and provide targeted advice in this regard. However, you can often achieve the effect you want of making your offer stand out by offering even just $5k-$10k above asking. That will show the seller you are serious about buying the home!
The above ways to strengthen your offer are some of the most common ones. You can use others, too, such as adding an escalation clause, making a larger down payment, buying the home in cash, or waiving the appraisal contingency.
Ultimately, anything that offers the seller more money or makes your offer more likely to complete will strengthen it. Removing contingencies, making it clean, increasing your earnest money, and adding a little more money are some of the most common ways to make your offer pop in a competitive market.