The real estate market, like everything else in 2020 and 2021, has been challenging to navigate. As home inventories plummeted and prices rose, buyers across Florida found themselves in active bidding wars for fewer and fewer available homes. While this is true in any seller’s market, Floridians faced the additional challenge of a significant influx of new residents from around the country.
Many who had purchased a home in the past realized that the rules had changed. Buyers don’t have much leverage in any seller’s market, but they seem to have almost no influence in this one. Given the situation, buyers could begin to feel helpless, but if you are a homebuyer in Florida, there are solid strategies to help you successfully land your new home.
- Find an experienced agent: In the last few years, there has been a move towards automating the real estate market. This has caused many to wonder if the role of the real estate agent will slowly diminish. However, the current environment highlights why an experienced agent will always be an asset for a homebuyer, especially in a challenging market. In addition to expertise, an established agent will have deep connections in the local real estate community. When decisions are being made, remember the adage, “it’s not what you know, it’s who you know.” Agents also are great for setting and managing expectations so that you don’t get burnt out on the process on your way to victory.
- Do the approval work before you make an offer: Until a few years ago, it was sufficient to attach a pre-qualification letter to your offer. But these pre-quals were based on basic information, and the actual loan approval process was still fraught with possible perils and roadblocks. In today’s environment, you can get pre-approved before making an offer. The process takes longer on the front end but gives the seller the assurance they need that the loan will be approved and the deal won’t fall apart after a month of their property being off the market. Speak to your mortgage lender now and get started on obtaining approval before entering a bidding war.
- Don’t skimp on the earnest money: Cash is king, and every seller prefers a cash offer for one straightforward reason – they don’t have to wait 45-60 days to see if the bank will approve your loan. However, every buyer can’t make an all-cash offer. But the more cash that the seller sees on the table, the more likely they are to consider your offer. For instance, buyers often try to put up the minimum earnest money deposit in a normalized market. The earnest money deposit is your guarantee that you will follow through with the terms as written, or else forfeit your deposit to the seller. Earnest money assures the seller that they are reimbursed for their trouble if you decide to breach the contract in any way. You may wish to consider doubling or tripling your earnest money deposit. As long as you follow through on the contract terms, that money will go towards the purchase price on closing day.
- Keep contingencies over control: In a blistering seller’s market, buyers don’t have many bargaining chips. Asking the seller to paint the interior, repair the fence, or help you with closing costs is likely to be a failed strategy. Additionally, if you can drop any of the more traditional contingencies, you can strengthen your offer. We just discussed getting approved before making an offer – if you do so, you may be able to drop the financing contingency. Discuss with your agent the other ways you can relieve the stress or responsibility of the seller by waiving standard contingencies. Be sure you understand the implications and risks of waiving these terms. Keep in mind that some contingencies, such as inspection contingencies, cannot be waived if financing with certain types of loans.
- Look under your price range: Most buyers move to the very upper limit of their approval range when looking for a home. While it is understandable that a buyer wants the best house possible, searching for the most expensive home you can afford leaves you no room for negotiation. In other words, look for a home priced 20% under your budget, and then you can increase your bid if competing with another buyer.
- Give your offer a second chance: Add an escalation clause to your offer to guarantee that it makes it past the first round. In a multiple offer situation, the seller may choose the highest and best offer and decline the rest. Because you never know what others are offering, you can lose the home over a few thousand dollars. An escalation clause indicates that you will pay more than the highest bidder, with limits. For instance, you can present a $300,000 offer with an escalation clause that promises 2% higher than the highest bid up to $325,000. The clause allows an additional opportunity you may not have otherwise.
- Find out what the seller needs: The more flexible you can be with the seller, the more likely they will work with you. If you can do so, allow the seller to dictate when they wish to close, or if they need to close but then lease the home back for two additional weeks. Find out where the seller’s stress points are, and see if you can help relieve that stress.
If you must purchase a home in a seller’s market, you are not operating from a place of strength – that is just the reality. Trying to offer less than list price, adding a lot of contingencies, asking the seller for special favors and promises – these strategies are all likely to disqualify your offer. Work with your realtor to write an offer as clean as possible and carries the most potential for success.
Congratulations on your accepted offer! Now that you are under contract, there is still work to be done for your loan to get final approval. For instance, every individual looking to purchase a home with a federally backed mortgage will need to obtain homeowners insurance before closing day. Be sure to work with your agent to create a checklist of deadlines and requirements to stay on track to a successful purchase.
Anderson and Associates Insurance Group is a family-owned agency located in Palmetto, Florida. They have been providing Life and Health Insurance to Manatee County residents since 1985, adding a line of Property and Casualty coverage in 2004.
