Stiff competition, low inventory, and historically low interest rates* have firmly established a seller’s housing market. In fact, the National Association of Realtors raised their housing market forecast this week, and pending home sales have risen 16.6 percent monthly since May. Whether you’re a first-time homebuyer or simply new to a seller’s market, you must be equipped with a strong understanding of the incentives at your disposal to compete in many areas. Here are four incentives we think you should know before stepping foot in a potential home.
Home purchase offers typically include both appraisal and financing contingencies. An appraisal contingency stipulates that the offer you make must match the value that an independent third-party appraiser determines for the property. A financing contingency specifies that you will provide proof that your mortgage application will be approved by a certain date. Shorter contingency removal dates are desirable for sellers because it means that the sale can potentially move forward – or they can move on – expediently.
In a hot market, waiving a home inspection contingency in your offer is a major incentive to sellers because it removes one of the primary pathways to renegotiating or backing out of a deal. Of course, buyers should exercise extreme caution before doing so. Big ticket items like an aging roof or cracked foundation are quite costly. Some buyers pre-inspect the property by bringing a contractor to their showing to pre-inspect. Contractors can typically identify any major problems, reducing the risk involved with this approach.
A flexible buyer is appealing to sellers. If you are in a living situation that allows you to close on the purchase when it is convenient for the seller, that may provide an advantage. Strategies for leveraging this position might include offering a purchase rentback agreement** to give the seller time to find a new home, or having the credit portion of your loan underwritten in advance to speed your closing date to as few as 15 days from the time your lender receives a purchase contract for certain loan types or products.
Agents will tell you that every offer tells a story. Put simply, a large earnest money deposit helps reinforce the narrative that you are serious, strong buyer and that you have the funds to back it up. Keep in mind that you’ll need enough liquidity to cover the costs of inspections and other expenses, though, and budget carefully.
Equipped with knowledge of these four incentives (and a preapproval, of course), you are better prepared to make an offer on the house of your dreams. Have questions? Contact us to connect you with a fantastic real estate agent or to discuss prequalifying for a mortgage.
*As of 7/30/2020
**Mortgages typically require borrowers to occupy homes within 60 days of closing, so it is advised that purchase rentback agreements not exceed that timeframe.