In March of this year, ICE Mortgage Technology, a leading global provider of market data, published an article stating that the average time to close a purchase loan on a home was 53 days. But in the DC-Metro area, writing an offer with a close date of 53 days may as well be written for 53 years. Most contracts we receive have a closing time of between 21-30 days—some even as fast as 14 days. And with low inventory and high competition, buyers are pulling out all the stops.
What do sellers & listing agents look for besides the offered price? Well, a lot!
1. Sellers do not like contract contingencies. Sellers want to ensure a smooth closing. They do not want to worry about inspection contingencies, appraisal contingencies, financing contingencies, or home sale contingencies. Why is this so important to a seller? Because without contract contingencies, the buyer has no recourse if the home has defects, does not appraise, or if the buyer’s loan is not approved. If the buyer were unable to close, the seller would get to keep the buyers earnest money deposit.
Housing defects should always be disclosed to any buyer in the sellers’ disclosures. However, a home inspection can uncover other issues. A pre-inspection (inspection before your offer is submitted) is one way buyer’s can secure peace of mind and a deeper understanding of the home they are purchasing before they waive their inspection contingency.
2. To most sellers, a fast closing is very important. If a buyer’s lender can pull off a closing in 2-3 weeks, it could be advantageous enough for a seller to accept the offer. Before you choose your lender, learn about their turnaround times to make sure they can deliver on a quick settlement.
3. Be strategic about which lender you choose. It is very important to remember that not all lenders are the same. Local lenders with a solid reputation and a strong understanding of the current market environment may be able to give you an advantage over the competition. Buyers cannot control other potential home offers…but they can control who they decide to use for financing. In a multiple offer situation, the seller and their agent will need to look at all the additional aspects of the offer to determine which is best. Listing agents prefer to work with local lenders over online and/or national lenders. This can often be the determining factor between which offer is, or is not, accepted.
4. Some lenders can waive appraisals even before the buyer makes an offer on a home. Appraisal waivers are specific to the home, the sales price, credit scores and down payment amount. With conventional financing, a down payment of 20 percent or more may qualify a buyer for an appraisal waiver. A good lender can confirm if you qualify for a waiver before you make an offer, so be sure to ask your lender if they have this capability/tool before deciding who to use.
We have found this to be a huge advantage. When a buyer can make an offer to a specific price point, (possibly even higher than the current asking price), there are no concerns about paying more if the home does not appraise. Furthermore, waiving the appraisal speeds up the entire process, meaning a buyer could technically close on a home in 2 weeks versus 3-4 weeks.
5. Earnest money deposit amount is also important. The typical 3 percent of the purchase price may be too little in today’s competitive market. Some buyers are offering earnest money deposits of 10-20 percent of the purchase price. To a seller, it simply means that they have more to gain even if the deal falls apart and they must re-list their home.
- Be sure you have an experienced real estate agent who is active in the 2020-2021 housing trenches and knows what it takes to be competitive in today’s market.
- Make sure you are working with an experienced mortgage professional who will give you a competitive advantage over other homebuyers. If your lender is not local, knowledgeable, and lightning fast, they could hurt your chances of getting under contract.
- Be prepared to pay more than the list price and ensure your budget can handle it.
- Be resilient. It is not common to get your first offer accepted these days, so make your best offer up front and be prepared to waive contingencies. Ensure your realtor has done their homework and knows what the seller is really looking for in an offer.
- Paying more than the list price is not the end of the world if you plan to live in the home forever. However, do not be too quick to jump into this market and overpay for a home if you think you may sell in a year or two.
Feel free to ask additional questions or share some of your own experiences that may help other homebuyers in this very competitive market. Happy shopping!
For more information, please feel free to contact us at (240) 670-5090, or email us at CJMT@mainstreethl.com