Most of you have heard the news that interest rates are at historic lows. It's to the point where you are almost being given money to buy a home. You've done the math and you know owning a home is cheaper than throwing away money on rent. You have saved enough for a down payment. Now it's time to find a great home and make an offer!....Or offers. Because the first offer you make is often just a warm-up to multiples. Welcome to the reality of Silicon Valley!
If you've bought a Silicon Valley home in the last few years, you are doubtless aware of how competitive the market continues to be for buyers. But for first time homebuyers, after getting over the initial sticker shock, it's important to focus on what other factors in addition to offer price help in beating out other offers and getting yours accepted. Here's a cheat sheet:
1. Work with a realtor that can find comparable sold homes to help you decide what to offer.
It's crucial to understand the current market and recent sales of comparable properties, or "comps" can give you a good idea as to what price to offer. Yes, this info is available online, but a diligent realtor should go a step further: researching any comps that sold off-market and aren't made public, connecting with listing agents to better understand the conditions of the sales; were there contingencies, rent back, etc.
2. Consider the risks and benefits of submitting a non-contingent offer.
In the olden days, almost all offers were contingent. Buyers had the luxury of an inspection, appraisal and loan contingency. This gave them the peace of mind to conduct their own property inspections, and wait for the appraisal report plus their loan to process. If anything went wrong, the contingencies allowed them to back out of the transaction without forfeiting their deposit. Those days are largely gone. Nowadays, for a hot property you will likely be up against other buyers who are fully prepared to go non-contingent. How can you do the same with little risk? First, most sellers will provide home, pest and roof inspection reports so you are fully informed on the condition before you submit an offer. Local and licensed inspection companies are best. They will stand by their reports and welcome your inquiries regarding any concerns. If all reports seem clear, you might feel more comfortable removing the inspection contingency. Second, make sure you are working with an experienced lender or mortgage broker who can clearly explain your risks for removing appraisal and loan contingencies. Keep in mind the larger your down payment, the less risk in removing your appraisal contingency. If the home appraises for less than the purchase price, your down payment may able to cover the difference. The decision to remove contingencies and the risks involved should always be carefully considered with your lender and realtor.
3. Find out what items might make your offer more attractive to the seller.
Your realtor should discover from the listing agent if the sellers have any special requests that you can accommodate. Will they need a rent back? A rent back is when sellers stay in their home for a set period after close of escrow and "rent back" from you, the new owner. This allows the sellers to close on/search for a new home, or move out at a more leisurely pace. Providing a free rent back, where the buyer/new owner covers the mortgage payments, is becoming the norm. Do the sellers need a shorter or longer escrow? Any items or appliances that would be more convenient for the sellers to leave behind? Your agent can write up all of these as part of the terms of your offer.
4. If requested or welcomed by the seller, write a fantastic introductory letter to the sellers.
Many sellers are emotional when they consider that someone else will shortly be living in their home, a place where they might have raised a family and created so many memories. For some sellers, it's important that their home goes to a buyer that they feel will truly appreciate their home. That's why some buyers include an introductory letter with their offer, as a way of providing a short summary of what they love about the home and neighborhood and details about their background. Some will include a photo. The decision to include a letter is subjective. Some sellers don't want to be influenced by letters and only want to consider the offer price and terms. Some agents argue that knowing more personal details about buyers through letters could be seen as discriminatory. In my experience, most sellers are very curious about buyers and welcome introductory letters, but your realtor should confirm with the listing agent if they should be submitted along with your offer.
As you can see, there are multiple factors that play into getting your offer accepted. The home-buying process has never been easy, and is even more difficult here in Silicon Valley with low inventory, but I hope I have given you some additional ideas to consider. Reach out with further questions: 408.438.6470.
Good luck out there!