Question: Are you seeing competition for homes in Arlington? If so, what is the best way to win?
I am seeing more competition for homes in Arlington than I expected to see this year. Unless housing supply begins to catch up with demand for certain types of homes in Arlington, this trend is likely to continue.
The most obvious variable in a purchase contract is price, but nobody wants to pay more than they need to. It would be nice if we knew exactly what others have offered, but the listing agent is not allowed to share this information unless he or she has written consent from the seller to do so. Most sellers don’t feel the need to share this information so you are usually going to be in the dark about the amount of other offers.
You can, however, include an escalation clause with your contract. An escalation clause allows you to start with a certain price while allowing your offer price to escalate in predetermined increments until it gets to a maximum or beats the other offers. For example, you could write your offer for $500,000 with an escalation to $510,000 in $1,000 increments. If the other highest offer is $505,000 your offer would escalate to $506,000. That does not mean you automatically win the contract. In fact, I have seen plenty of situation where the person offering $505,000 (in this example) wins the contract.
You have to keep in mind that there are many other criteria being considered in an offer beyond price. Below are seven items you can use to strengthen an offer for little or no cost. You may also want to consider these seven items to strengthen your negotiation position even if you are the only one writing an offer on the home you want.
1) Earnest Money Deposit (EMD)
In Arlington, we are usually able to get away with an EMD equal to about 1% of the purchase price. Sellers prefer to see more because it makes them feel as though you are more committed to the purchase. Assuming you fulfill your obligations under the contract, this money is credited back to you at settlement. Therefore, why not increase the EMD amount to strengthen your offer? Talk to your Realtor about a percentage that makes sense for your situation.
2) Appraisal Contingency
Most contracts request 21 days or more for the appraisal contingency. The regional contract even suggests that 21 days is typical. Sellers prefer for this contingency to be as short as possible so they know the outcome sooner than later. Let me share a secret, most lenders can get an appraisal completed in 3 days if they need to. I guarantee you that mine can. Why not shorten the contingency period? Talk to your Realtor and lender to decide on a number of days that they can live up to.
3) Financial Contingency
Like the appraisal contingency, most contracts request 21 days or more for the financial contingency. Again, the sellers prefer for the contingency period to be as short as possible. By working with your lender to get them everything they need prior to writing an offer, they can speed up the approval of your loan. This will allow you to shorten the financial contingency period and strengthen your offer.
4) Home Inspection Contingency
Most contracts request 7-10 days for the home inspection contingency, regardless of when they plan to do the home inspection. If you are writing an offer on Wednesday and plan to do your home inspection on Saturday, do you really need to ask for 7-10 days? The faster you can commit to removing these contingencies, the stronger your offer will be in the eyes of the seller.
5) Termite Inspection
By default, most agents require that the seller order and pay for the termite inspection in the contract. A seller looks at this and sees dollar signs coming out of his or her pocket. This can be one more thing that weakens the contract or one more way to strengthen it. We have relationships with local pest inspectors that allow us to have a termite inspection completed for less than $35. If you don’t mind absorbing the $35, then maybe it makes sense to cover the termite inspection instead of asking the seller to do so.
6) Closing Date
The time between ratified contract and settlement is typically 30 days. Many Realtors default to this time frame when preparing an offer, but some sellers prefer a shorter or longer settlement period. Your Realtor should be learning as much as possible about the seller of any home you are thinking about making an offer on and together you can decide whether it is a good idea to try and accommodate the sellers preferred closing date. By providing your lender with all the information he or she requires, prior to writing an offer, you will be in a better position to close in less than 30 days if you need to.
7) Lender Pre-Approval
The more complete your loan application and supporting materials, the stronger your pre-approval will be. Compare the difference between a home buyer who has just given the loan officer a few details over the phone to the home buyer who has completed a full application and provided the loan officer with all the supporting documentation. The first is very flimsy, while the second buyer is ready to be funded as long as the home meets the bank’s qualifications.
In the right situation, you may also want to consider a heartfelt letter to the seller. You may even want to include a photo of the adorable children that you plan to raise in this home. In order for this strategy to be effective, it has to be the right buyers and the right sellers, so use it cautiously.
The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.