How to Make a Smart, Competitive Offer in a Sellers’ Market

Although things seem to be changing in many parts of the country as interest rates rise, we are still undoubtedly experiencing a seller's market throughout the Greater St. Louis area. As a home buyer, it can be tough to know how to win a contract on the home you are eyeing when there seems to be so much competition. There are many effective negotiating techniques that home buyers can use in any market. The following strategies are some additional tips to help you make a smart, competitive offer in a seller's market.

1. Hire an Experienced REALTOR®

Trying to navigate a real estate purchase on your own, especially in a market favoring sellers, can be quite challenging. Hiring an experienced REALTOR® who has a pulse on the market and has worked through these processes many times will save you time, money, and multiple headaches. Real estate specialists will often be professionally connected with other individuals in the industry who will be involved in the transaction. They can connect you with a reputable lender, inspector, insurance agent, title company, and more! Having a team of service providers with a track record of success will take so much of the stress out of the buying process and help ensure things go smoothly.

2. Know Exactly What You Want

In a competitive market, you will need to be prepared to act fast. Often, there may not be time to think about what might be a want versus a need after you have viewed a home. To help make your decisions, you should think about and really narrow down your wants and needs for your next home before you begin searching. This way, you can easily decide if a home checks the boxes or not.

3. Take Your Pre-Approval a Step Further

Getting pre-approved is basically the first step in the home-buying process and is crucial in any market. However, in a highly competitive sellers’ market, you should talk to your lender about taking it a step further and going through the full mortgage underwriting process. A pre-approval is simply a preliminary check of your credit and finances and not necessarily a sure guarantee that you will ultimately be able to obtain the mortgage. Sellers want the most certain purchase arrangement, and if you can’t offer full cash, offering the highest guarantee of funding you can make your offer more appealing to the sellers and could help you stand out.

4. Write a Clean Offer

A clean offer is one that is free of contingencies, or things that must happen in order for the sale to ultimately go through. This is quite appealing to the seller because it means the deal is more likely to close without problems or delays. While this isn’t always the best way to go as a buyer, you should consider keeping the offer free of any contingencies possible in a sellers’ market. You should discuss the different contingencies with your real estate agent and decide which you can reasonably give up without putting yourself at risk. A clean offer should also be free of seller concessions, such as asking them to help with closing costs. It is also wise to avoid asking for any personal property to be left, as this could cause them to quickly move on to another offer that does not ask for these things. If you really want the home, asking to keep that cool lawn furniture or the trampoline just isn’t worth it in a competitive market.

5. Increase Your Earnest Money Deposit

Earnest money is an amount of money that you put down with an offer that shows you are serious about purchasing the home. This money is typically applied to the purchase amount at closing, should the deal go through. One way you can stand out in a seller’s market is to increase the amount of earnest money that you put down with your offer. However, you should be careful with this. There are scenarios where a seller can keep the earnest money if certain conditions are not met, so make sure that you are really serious about your intent to purchase the home when doing this.

6. Make a Larger Down Payment on Your Loan

Sellers want to feel confident that the buyer they choose will have the capability to complete the sale. Any proof of financial ability that you can give them will help your offer stand out. If you can, making a larger down payment on your mortgage loan can show them that you are financially stable and should be able to go through with the purchase as agreed.

7. Offer With An Escalation Clause

In a sellers’ market, you should understand that you will likely end up paying at or above the asking price. This doesn’t mean you should completely blow your budget and risk putting yourself in a tough financial position. In order to make your offer competitive, while also protecting your budget, you can write an escalation clause into your offer. An escalation clause automatically outbids other offers up to a certain amount. 

For example, you may offer $250,000 for a home, with an escalation clause that states that you will outbid any higher offer by $1,500 up to $280,000. This means that if another offer comes in at $255,000 your offer automatically becomes $256,500. This would continue until your max offer is reached. In that scenario, if no other offers came in, your offer would remain $256,500 for the seller to consider. 

In the case of an escalation clause, you should keep in mind that the seller still has the ability to issue a counteroffer that would replace your escalation clause. This can be a great way to ensure your offer remains competitive against other offers that come in and is used often in sellers’ markets.

In Conclusion 

We know buying a home in a competitive sellers’ market can seem tough. Despite the obstacles, our team has had much success securing contracts for our buyers through any market. Even when home inventory is low and buyer competition is fierce, our unique strategies can help you secure a contract on a home that is perfect for you! We welcome you to contact us to set up a free, no-obligation strategy session with one of our Buyer Specialists to talk about your goals and share how we can help you meet those goals.