Saying the real estate market in Denver is insane right now would be a serious understatement. It is arguably the most competitive it has EVER been! But people are still buying houses. How in the heck are we getting offers accepted in a market like this? Are buyers having to sell their souls to get into a house? There are 2 important aspects of writing offers on homes that I will dissect - everything leading up to the offer submission and the actual offer itself.
Keys to Getting Under Contract Without Going Broke: Pre-Offer Submission
Preparation
In order to go out shopping right now (if you're serious), it is important that you are pre-approved, have your agency documents signed, have funds available, know what an offer looks like, and are familiar with the process of buying. When I have a new client come to me, I immediately send them several incredible lenders, agency documents, get an online search set up through the MLS, and schedule a time to educate them on the process. If you aren't serious about buying a home, you don't need to do any of this. But if you are, it is very important that you are "offer ready" before you head out shopping. When the right house comes on, you'll be able to make a move.
Speed
I set my clients up on searches that email them (and me) properties that fit their criteria as soon as they come on the market. If either of us see a good fit, we set a showing for that same day or the next morning. The sooner we get into the house, the sooner we can get an offer in. In our current market, it is difficult to sometimes even get a showing on a house because all of the slots book up quickly. Speed is critical in a market like this!
Strategy with Submitting
Depending on what the listing agent says about a home, we will likely submit an offer in 1 of 2 ways. If there are not strict deadlines, we typically submit an offer immediately after seeing it with 5-7 hours as the response time for the seller. This is an attempt to force a quick decision and try to tie the house up before more (or higher) offers come in. If there are strict deadlines in place, we will submit our offer very close to the deadline. Submitting early can sometimes result in the listing agent sharing your offer price with the competition and unnecessarily driving the price up. In this case, waiting can pay off as long as we have communicated with the listing agent that we intend to submit.
Keys to Getting Under Contract Without Going Broke: The Actual Offer
Outside of just offering more money (price), there are many strategies that can be used to get an offer accepted. Here are a few!
Appraisal Gap Coverage
Appraisal gap coverage is one of the most important factors in offers right now for most sellers. You can offer $50k over what a home is listed at, but it doesn't mean a lot when the likelihood of having a low appraisal is high. In order to make sellers feel comfortable, you should plan on offering appraisal gap coverage. An offer at $400k with $10k in gap coverage will often look better than an offer at $410k with no gap coverage, even though the offer is higher. *Do not submit an offer with gap coverage unless your agent has run comps and can confidently tell you what they believe the property would appraise for*
Limited Inspections
Eliminate your right to object or terminate. You still conduct an inspection but you are agreeing to buy the house "as is". I only recommend this strategy for my investor types who are well versed in real estate.
Eliminate your right to object. You still conduct and inspection and have a right to terminate, but you are agreeing to buy the property "as is" or not buy it at all. This is only recommended on condos and town homes in good condition, newer construction, etc.
Keep your right to object and terminate, but limit the dollar amount. "We will only object if a repair/replacement costs more than $2,000 to fix (per item)".
Limit the scope of your objection rights. "We will only object to items that fall within the category of health, safety, structural or major systems." This can be used in conjunction with the item above.
Earnest money
Offer more earnest money. It counts towards your down payment.
Some earnest money goes hard at 1 or 2 points in the transaction and is no longer refundable.
Fees
Pay for the title work
Cover 100% instead of 50% of the closing services fee
Cover 100% instead of 50% of HOA transfer and status letter fees
Great relationships & communication with the listing agent
I recently closed a deal where we were not the highest offer. However, the listing agent knew me and wanted to work with us because of my reputation. Having great relationships with other agents is key in this business.
Call the listing agent before submitting, ask what is important to the seller, text or call the agent after submitting, and continue to follow up to check in. Communication goes a long way and shows professionalism, determination, etc.
Timing (BE FLEXIBLE & SWIFT)
Offer a 2 week close (3 weeks if absolutely required). You will need a great lender to get this done.
Post Closing Occupancy Agreement (leaseback). Your first mortgage payment is not due until the end of your first full month of ownership. In other words, if you close on May 2nd, your first payment is not due until the end of June. While you aren't paying for the property, let the seller live there to make their lives easier for wherever they are going. If you can be flexible and allow a seller to maintain possession of the property for 30-60 days after closing at little to no cost, your offer will stand out.
Great lenders & creative lending
I only work with great lenders. The ability for my lenders to close on a conventional loan in just 2 weeks is extremely important. Great lenders will also call the listing agent and sell how strong of a buyer you are. With several of my lenders, I am actually able to submit a list of references of the deals we have closed together in the last year.
CASH LENDERS. There are companies like Accept.Inc out there that allow traditional buyers to become cash buyers. There is more paperwork and a few more hoops to jump through, but this type of lender can put you in the top 5-10% of offers right away.
Proof of funds
Our goal is to prevent the listing agent or seller from NEEDING to come back to us after submitting. A great way to do this is to submit proof of funds with your offer - a screenshot or bank statement showing you have the money for the downpayment, appraisal gap coverage, and closing costs.
Writing really great offers and an offer summary
Working with an agent who knows how to fill out an offer in its entirety and in a clean manner is very important. When submitting an offer, you should also assume that the agent is going to glance through them initially. Having the highlights of your offer summarized in an email to the agent with submission is a great way to get a quicker response.
Eliminate other contingencies
Due diligence documents
Property Insurance deadlines
ILC deadlines
The 13 items above are certainly not the ONLY ways you can make your offer more competitive. If you're interested in discussing this further, give me a call. I'd love to show you more creative solutions to getting under contract in this hot market!