When homes are flying off the shelves, house hunting can be frustrating. Homebuyers who submit multiple offers only to see them rejected often find themselves losing confidence and patience. If this is you, you may be wondering how to make an offer on a house that has a better chance of success.
Understanding the market, being over-prepared, staying flexible, and thinking strategically play central roles in compiling a competitive home offer. There are a few other hot housing market tips you should know before you continue your house-buying journey.
What is a Hot Market?
A hot market is a seller’s market but on steroids. In a seller’s market, there are more buyers than there are homes available for sale, and sellers have the upper hand in negotiations. A hot market is always a seller’s market, but specifically describes areas where homes are selling very quickly, multiple offers and bidding wars are common, and homes often sell above asking.
With very low inventories and lots of house hunters in the field, buyers need to make quick decisions and put together an appealing, highly competitive home offer. If you are already nervous reading about this, take a deep breath and start planning your strategy.
Preparing to Make a Competitive Home Offer
Before you dive into house hunting, set yourself up for success by assembling everything you will need.
Getting a mortgage pre-approval is essential in a market that’s moving fast. A pre-approval letter can put you ahead of the competition by showing sellers and their agents that you can afford the property and that you can close quickly. All other things being equal, an offer that comes with a pre-approval letter has a much better chance of being accepted.
When you choose a lender, select one that has excellent customer service. If you need to speak to them, you want to know that they will be available right away.
Be ready to close. Have your funds ready for your earnest money deposit, down payment, and closing costs, and get as much of the paperwork done in advance as you can. Sellers value a buyer who can close on their timeline, and having that flexibility makes for a more competitive home offer.
Make a Strong First Offer
In a hot market, you may not get a second chance to make a competitive home offer. Come in strong right from the start with a clean, solid offer, featuring these components.
Price at or Above Asking
How do you put an offer on a house with an appealing price? By submitting an offer that’s 5% to 15% over asking. Ask your real estate agent for a market analysis showing what comparables have sold for; that will guide the pricing part of your offer. Don’t lowball the seller; such an offer has little chance of success in a competitive market, and you could risk offending the seller.
Reduce or Waive Contingencies
When homes are selling quickly, sellers value a clean offer that includes few, if any, conditions.
It can be risky to waive a home inspection, but sometimes this is necessary. If you’re not comfortable waiving the home inspection completely, offer to have it done quickly. Ask your real estate agent for a referral to a home inspector who can do the inspection on short notice.
Waive the sale-of-home contingency. You will need bridge financing if your current home doesn’t sell before the deal on the new one closes, so prepare your paperwork and get started on an application.
Talk to your lender about ways to speed up your final mortgage approval. This will give you more flexibility for a fast closing, which makes for a more competitive home offer.
Offer More Earnest Money
The typical earnest money deposit is about 1% to 3% of the offer on the home. A competitive home offer in a hot market includes earnest money over 3%. More earnest money tells the seller that you’re serious about the transaction, because you would lose this money if you backed out of the deal.
Use an Escalation Clause
If you wind up in a bidding war, an escalation clause allows you to raise your bid to a specified level without going back and forth with your real estate agent. A sample escalation clause might say “Buyer will pay $2,000 over any competing offer up to a maximum of $450,000.”
Additional Non-Price Strategies
With lots of competition, sweetening the pot could push your bid into the “accepted” category. Here are some additional tactics for a competitive home offer:
- Matching the seller’s preferred closing date. This could mean that the closing date on your current property or the move-out date on your rental don’t match the closing date on your new home. Prepare for this by looking for local rentals or starting an application for bridge financing.
- Including a personal letter. Make sure the letter is authentic and gives the seller appealing insights into who you are and why you like the property. Run the letter by your real estate agent beforehand to make sure the tone and content are appropriate to the situation.
- Allowing the seller to rent the home from you if they need time to move.
How Do You Put an Offer on a House Quickly?
In competitive markets, homes can go under contract in 24 to 48 hours; getting your offer in as fast as possible can put you at an advantage.
Tour new listings the same day they go live and ask your agent to tell you about homes that are not yet listed. Submit your offer as soon as possible, within hours if you can. Be available to respond quickly to counter offers and stay in close communication with your real estate agent.
Structure a highly competitive home offer in advance, with flexibility built into it. Be sure to set realistic limits for your offer; the pressure of buying a home in a hot market can cause people to overextend or make promises they can’t keep.
What is a Good Offer on a House?
What is a good offer on a house? It’s one that gets accepted. Hot markets are stressful and competitive, but with the right preparation and support from an experienced real estate agent, you can compile a competitive home offer that winds up on the top of the heap.
