Throughout Illinois (and nationally) home sales and their prices continue to rise and home inventory remains low. This is what’s known as a seller's market and the competition for homes is steep.
As a homebuyer, it can feel impossible to stand out against strong bids and all-cash offers. Here’s how to make a competitive offer in a seller's market without overpaying.
Understand Your Wants vs. Your Needs
When you find a home you like in a competitive market you need to act fast. There’s usually no time to debate whether or not you’re ok with two bedrooms instead of three or to feel out the neighborhood. That’s why it’s essential to have a solid understanding of what you really need in a home and what you’re willing to compromise on.
Megan Ryan of the Zimmerman Group suggests rating each item into one of the following categories:
- Really Want
- Would-Be Nice
- Definitely NOT
Download the Zimmerman Group’s Zimmerman Group's Wants Vs. Needs Home Buying Rating Chart to help you get an in-depth idea of what your priorities are.
Get Pre Approved
In a hot market, an all-cash offer is always a stand-out. However, for most buyers, an all-cash offer simply isn’t possible. You can still show sellers you mean business by coming to the table with a pre-approval letter from your lender. Having a pre-approval letter in hand boosts the seller's confidence in your offer, knowing the sale won’t be contingent on financing.
Work With a Great Real Estate Agent
An experienced real estate agent is essential for anyone trying to buy a home in a competitive market. Not only do real estate agents have access to pre-marketing listings to help you get into homes before they hit the market, but they’re also experienced negotiators.
“It’s easy to get swept up in the emotion of buying a home especially when there are multiple offers in a fast-moving market,” says Joe Zimmerman of the Zimmerman Group. “Your real estate agent is your ally and your advocate. It’s our job to keep a level head so you make a smart investment and get a great deal.”
Include an Escalation Clause
An escalation clause is a great way to put in a strong offer but protect yourself from getting swept up in a bidding war and spending beyond your budget. An escalation clause allows you to put a bid in on a house, say for $200,000 with an escalation up to $215,000. Should there be no other offers you’ll get the house for $200,000.
However, if the seller receives a $210,000 offer, the escalation clause is exercised and your bid automatically changes to $211,000. Then, if the other buyer walks away the home is yours for $211,000. If they up their bid, your escalation clause continues to be used in increments of $1,000 until your cap is reached.
Negotiate the Details
A clean offer - one without contingencies - is always well received. Consider waiving the appraisal and offer to buy the home as-is. You should still conduct an inspection so you know what you’re getting into, but don’t ask the seller to make any repairs or provide you with a credit for those repairs.
And, if you can’t offer more money, offer convenience. You can do this by shortening the inspection period or being flexible in your closing timeline. “This is an area where first-time homebuyers have a chance to stand out,” says Kelly Boenzi of the Zimmerman Group. “First-time homebuyers who don’t have to coordinate the sale of another property can often work around the seller's moving schedule. That kind of convenience is something money just can’t buy.”
With some preplanning and the help of an experienced real estate agent, it is possible to compete in a seller's market without overpaying even as a first-time homebuyer.
Once your bid is accepted you're one step closer to homeownership, but you’re not there yet. Next, you’ll need to make sure your homeowners' insurance meets your specific needs. Check out our upcoming blog What Does Standard Homeowners Insurance Cover? to learn what is and isn’t covered in a standard policy.
If you’re ready to start your home search, the Zimmerman Group is here to help.