If you’re buying a home right now, you might find the competition is stiff: More than 60 percent of homes faced a bidding war, a recent Redfin report found, thanks to low mortgage rates and scarce inventory.
Your offer will need to rise to the top. But how? We asked some real estate pros how to make an offer that will win a bidding war.
GOING ALL CASH
In homebuying, “cash is king,” says Chris Dossman, a real estate agent with Century 21 Scheetz in Indianapolis, because an all-cash offer takes the mortgage lender out of the equation. Cash buyers, who currently make up about 33 percent of home sales, don’t need to have a mortgage approved to finalize a purchase.
Of course, putting down all cash isn’t going to be possible for everyone, so consider increasing your down payment if possible.
Also, if your offer is contingent upon getting approved for a mortgage, note that the seller might prefer conventional loans over Federal Housing Administration or Veteran Affairs loans “because there are fewer hoops to jump through” during the appraisal and underwriting process, Dossman says.
MAKING A BIG EARNEST MONEY DEPOSIT
One way you can show a seller that you're committed is to submit an earnest money deposit with your offer. The seller gets to keep the earnest money if your offer falls through and making the deposit shows you’re not putting down bids on other homes.
A standard earnest money deposit is 1 percent to 3 percent of a home’s sale price. But in today’s market, buyers may be willing to make a deposit of up to 10 percent, says Linda Sanderfoot, a real estate agent at Coldwell Banker in Neenah, Wisconsin.
ASKING FOR FEWER CONTINGENCIES
Another Redfin study found that homebuyers are waiving contingencies (conditions to the sale that are worked into a real estate contract) at a higher rate than before the pandemic to remain competitive. For instance, over the past six months, more than 13 percent of successful offers waived the inspection contingency, up from about 6 percent a year earlier. That’s a big incentive for sellers who have older homes, Sanderfoot says. More than 17 percent also waived the home appraisal contingency.
In addition, an offer to purchase a home “as-is” — meaning the buyer has agreed to purchase the home in its current condition — can be attractive, since it assures sellers that they won’t be charged for home inspection repairs, Dossman adds.
Just be aware that when you waive a contingency, you’re taking on financial risk, from paying for repairs yourself to possibly covering the difference in cash if the home’s appraised value comes in lower than the offer price.
BEING FLEXIBLE ON THE CLOSING DATE
All home offers include a settlement date that dictates when the transaction will be completed. In a balanced market, home sales usually close in 30 to 45 days, but sellers today are able to negotiate a closing period that works for them. For example, sellers who’ve already purchased their next home may ask for a 14- to 21-day closing; sellers who need time to find their new home may want a closing of 60 to 90 days.
Some sellers may also want to negotiate a “rent-back” agreement that allows them to stay in their home after closing if they need additional time to purchase their next house.
OFFERING TO COVER SOME CLOSING COSTS
Sellers usually pay closing costs of 5 percent to 10 percent of their home’s sales price. But in a hot market, offering to pay a portion of a seller’s closing fees can make your offer stand out among a competitive field of buyers.