Bidding on a house in a seller's market
January 15, 2016 8:01 PM Subscribe
I'm contemplating offering to buy a house in a seller's market. I know there is at least one other offer being placed sometime soon. What's a good strategy?
The house I'm interested in is in the high 280s, which is pretty high (especially per square foot) though not completely unreasonable (perhaps lower 280s is fairer) but it's a very nicely appointed place that the current owners clearly take very good care of. I am preapproved for 300k and could probably get more. I can afford a 20% down payment on a pricier house (300k), excellent credit, and am pretty flexible surrounding closing dates (basically any time in the next 6 months works for me). There's an open house over the weekend so I expect more offers to appear shortly. The house is smallish (1000 sq ft, officially) but that totally works for me (no kids, spouse; not a lot of desire to spend my waking hours vacuuming and sweeping). It has a finished basement so the livable space is closer to 1500 sq ft. As far as I know the some of the obvious items (roof, furnace, water heater) are all in good shape. i will of course be having it inspected, however. I do have a good buyer's agent helping me with this, but I thought I'd ask the hivemind.
Should I offer a little more than the asking price even though I already feel it might be a little high, since I can swing it and that might make the difference? Should I offer the asking price and hope my flexibility surrounding closing will help (will the sellers even know about that before it's under contract)? What worked for you, if you've done something similar? I found some askme questions surrounding sending the current owners a letter, which I don't think will work in this circumstance (I think the family has just outgrown the house).
Location in my profile.
The house I'm interested in is in the high 280s, which is pretty high (especially per square foot) though not completely unreasonable (perhaps lower 280s is fairer) but it's a very nicely appointed place that the current owners clearly take very good care of. I am preapproved for 300k and could probably get more. I can afford a 20% down payment on a pricier house (300k), excellent credit, and am pretty flexible surrounding closing dates (basically any time in the next 6 months works for me). There's an open house over the weekend so I expect more offers to appear shortly. The house is smallish (1000 sq ft, officially) but that totally works for me (no kids, spouse; not a lot of desire to spend my waking hours vacuuming and sweeping). It has a finished basement so the livable space is closer to 1500 sq ft. As far as I know the some of the obvious items (roof, furnace, water heater) are all in good shape. i will of course be having it inspected, however. I do have a good buyer's agent helping me with this, but I thought I'd ask the hivemind.
Should I offer a little more than the asking price even though I already feel it might be a little high, since I can swing it and that might make the difference? Should I offer the asking price and hope my flexibility surrounding closing will help (will the sellers even know about that before it's under contract)? What worked for you, if you've done something similar? I found some askme questions surrounding sending the current owners a letter, which I don't think will work in this circumstance (I think the family has just outgrown the house).
Location in my profile.
I think the letter can still work in this situation, especially if they're leaving under good circumstances. Our sellers (in a VERY hot seller's market) moved down the road about a mile, but they were sad to leave their neighbors. We had a kid the same age as the neighbors next door, and I schmoozed them up at the open house.
In your case, I would emphasize (if true) the willingness to be flexible, as AugustWest mentioned, as well as some reasons why you're a great neighbor. You like what they've done with the place; you love the atmosphere; you're excited to contribute to the neighborhood. Whatever.
Having gone through buying our first home at the same time (with the same agent) as my parents selling theirs and the house next door, I can tell you that being flexible and not nitpicking goes a long way. Even if the seller's market makes it easy for them to find the top bidder, they won't want to go through the headache of navigating 800 contingencies (like the people next door did... oy). Emphasize how easy you are to work with and the amount of research you've done about the house and the process. They'll appreciate that a LOT.
posted by St. Hubbins at 8:27 PM on January 15, 2016
In your case, I would emphasize (if true) the willingness to be flexible, as AugustWest mentioned, as well as some reasons why you're a great neighbor. You like what they've done with the place; you love the atmosphere; you're excited to contribute to the neighborhood. Whatever.
Having gone through buying our first home at the same time (with the same agent) as my parents selling theirs and the house next door, I can tell you that being flexible and not nitpicking goes a long way. Even if the seller's market makes it easy for them to find the top bidder, they won't want to go through the headache of navigating 800 contingencies (like the people next door did... oy). Emphasize how easy you are to work with and the amount of research you've done about the house and the process. They'll appreciate that a LOT.
posted by St. Hubbins at 8:27 PM on January 15, 2016
A good real estate agent will know your market well and advise you on what strategies will work in your region and price band at that particular point in time based on what they have seen. Here in Seattle it usually involves escalator clauses with big jumps between steps as well as waiving inspection and sometimes financing contingencies, because people have to beat cash offers. But anything anyone else says on this thread may be totally wrong for your conditions. You really need to work with an agent who has experience in your market.
posted by matildaben at 8:30 PM on January 15, 2016 [1 favorite]
posted by matildaben at 8:30 PM on January 15, 2016 [1 favorite]
A good real estate agent in your town should be able to answer this question best.
posted by bluedaisy at 8:36 PM on January 15, 2016
posted by bluedaisy at 8:36 PM on January 15, 2016
Response by poster: Because it's been mentioned twice now: I have an agent. I'm looking for perspectives in addition to his, not in lieu of it.
posted by axiom at 8:37 PM on January 15, 2016
posted by axiom at 8:37 PM on January 15, 2016
Just be careful about offering too much above market. If it doesn't appraise for the purchase price, you could run into trouble (though typically not insurmountable if you're willing to put more money in).
Also, be clear with yourself about whether your goal is to get the house at (almost) any cost (is this the one?), or if you only want it if you can get it for a good price. Decide that up front, and don't forget about it in the heat of negotiation.
When we bought our house, it was a pretty competitive situation. We won it by a combination of offering full asking price, minimizing contingencies, and asking our agent to convey that we'd be easy to work with and not try to nitpick on inspection items, etc. (maybe everyone says that, but it was true in our case). I think it's hard to beat cash buyers if you're up against them, but we tried to be as easy as non-cash buyers could be. Very solid financing (big down payment, buying substantially less than we were approved for, stellar credit, etc.), lots of earnest money, no need to sell our old house first, as short of a closing period as the lender could offer, and so on. Obviously not all of those things will be possible for everyone, but the closer you can get to zero friction for the seller, the better.
posted by primethyme at 10:38 PM on January 15, 2016
Also, be clear with yourself about whether your goal is to get the house at (almost) any cost (is this the one?), or if you only want it if you can get it for a good price. Decide that up front, and don't forget about it in the heat of negotiation.
When we bought our house, it was a pretty competitive situation. We won it by a combination of offering full asking price, minimizing contingencies, and asking our agent to convey that we'd be easy to work with and not try to nitpick on inspection items, etc. (maybe everyone says that, but it was true in our case). I think it's hard to beat cash buyers if you're up against them, but we tried to be as easy as non-cash buyers could be. Very solid financing (big down payment, buying substantially less than we were approved for, stellar credit, etc.), lots of earnest money, no need to sell our old house first, as short of a closing period as the lender could offer, and so on. Obviously not all of those things will be possible for everyone, but the closer you can get to zero friction for the seller, the better.
posted by primethyme at 10:38 PM on January 15, 2016
Some buyers will take the offer that will close soonest. They want the process over. They'll take all cash, if it's available. But if you can write your offer with a 30-day close instead of 45, that'll make you more competitive than many others. To do that, you'll probably have to get things all lined up with a mortgage broker.
posted by salvia at 10:44 PM on January 15, 2016
posted by salvia at 10:44 PM on January 15, 2016
It depends heavily on the specific market. We're looking in a hot market, and homes in our price range are selling for 7-10% above list price, on average. If you haven't already, see what similar homes in the neighborhood have recently sold for, to give you an idea of what a strong offer will look like.
If there's a due date for offers, don't submit yours until then, so the seller doesn't have time to shop it around. If you can, find out how many other offers they've received or are expecting, so you have an idea of how competitive you need to be. If there's no due date, submit an offer with a short expiration window.
Ask if you can do a pre-inspection, so you can waive the inspection contingency (without completely fucking yourself over). This will require a little money and some flexibility on both your part and the seller's, but it shows that you're serious.
posted by Metroid Baby at 3:55 AM on January 16, 2016
If there's a due date for offers, don't submit yours until then, so the seller doesn't have time to shop it around. If you can, find out how many other offers they've received or are expecting, so you have an idea of how competitive you need to be. If there's no due date, submit an offer with a short expiration window.
Ask if you can do a pre-inspection, so you can waive the inspection contingency (without completely fucking yourself over). This will require a little money and some flexibility on both your part and the seller's, but it shows that you're serious.
posted by Metroid Baby at 3:55 AM on January 16, 2016
In my experience of the seller's market, cash-in-hand. Like Primethyme mentions, a seller's market means that you have to be extra mindful of how much the property is going to appraise for. People with more cash (or all cash offers if you're competing with investor/landlords) will win the bidding war because they can put in a larger down payment in case of a low appraisal.
posted by Gable Oak at 11:40 AM on January 16, 2016
posted by Gable Oak at 11:40 AM on January 16, 2016
I live in Seattle (one of the hottest markets currently) and have found my friends buying houses recently have had to rely on escalation clauses to win their bidding wars. I'd discuss it with your realtor. Basically, you offer x but you authorize your realtor to bid up to x + y, with x+y equaling the max amount you're willing to pay. Thus, you don't have to bid the max amount but you will allow for some quick price negotiations if needed.
posted by nursegracer at 1:32 AM on January 18, 2016
posted by nursegracer at 1:32 AM on January 18, 2016
This thread is closed to new comments.
Having said that, I think there are probably several strategies that would maximize your chance of getting the house at a price you were willing to pay. Use one that suits your personality. I like to be up front with my best bid and to not have it hanging out there. I really do not like when a seller uses my bid to try to get higher out of someone else. If I give you an offer in good faith, certainly one that is at or over your ask, accept it or reject it. But again, that is just me.
When I have purchased houses, I have used the same strategy I use with buying a car or negotiating on almost any item. I have a known to me predetermined maximum price I am willing to pay and know that I will walk away at a higher price even if that higher price is almost immaterial. If I am willing to go higher, then I did not set my max price correctly to begin with. Usually I just say here is what I am offering, take it or leave it but in a nicer way.
posted by AugustWest at 8:18 PM on January 15, 2016 [1 favorite]