02/23/2021
I am currently helping a few buyers look for homes in the Denver metro area - and competition is fierce! Here are some ways buyers are being competitive in our market, along with simple explanations as to what they are:
PRICE
Over-asking is of course most competitive, but you still want to do market analysis and compare to other homes sold in past months, taking into consideration the condition/updates in the home, as well as recent home sales (2021) driving up current prices.
ESCALATION CLAUSE
Promising you'll pay x amount over any competing offer, can have ceiling or not. ie, if purchase price is $500k, a buyer may offer $505k but pay $1500 over a higher offer up to $540k.
RENT-BACK
Currently it is very difficult to go under contract when you have a home sale contingency, so sellers will select their replacement home after they are under contract and possibly closed (leaving them with cash to buy), which will necessitate at least a 30-day rent-back. Most competitive is free rent-back but it is up to the buyer. They buyer can always ask for a refundable deposit to cover any losses. The max period you can offer a rent-back in Colorado is 60 days.
APPRAISAL GAP
Since values are going up, buyers sometimes agree to pay x amount of cash up to a max difference if appraisal comes in low, to make up the difference for their lender. So if you have an appraisal gap of $5k, you are willing to pay the difference up to $5k cash for the home if the appraisal comes in lower than the contracted price. Just make sure your lender is aware you are offering this so you don’t have problems with financing. In NORMAL competitive markets buyers usually don’t go above $10k for an appraisal gap, but I’ve been hearing of people in very competitive situations offer much more than that - $20k-$50k!
INSPECTION
You always want to conduct an inspection, including sewer scope and radon test, so you know what you are buying. I advise clients to put in offers that have a provision that states they will waive the inspection except for significant health or safety items. This way you are still covered for higher cost items that would affect your health if living in the home, or you can back out of the contract. This includes roof, radon, large plumbing issues, large electrical issues, pests, mold, etc. The seller should realize that no matter the buyer, they will want the work done - and once they know about the problem, they will need to disclose to potential buyers.
LETTERS
I don't encourage letters in multiple offer situations but buyers sometimes really want to put one in. They are not illegal but many brokerages discourage or do not allow. If you do write a letter, it's best to focus on why you love the home, let them know you'll take care of it as they have, and less personal information (personal info you give them opens the grounds for discrimination). This is a sensitive one since some sellers want to know more about the buyers and others do not.
LENDER RECOMMENDATION
A direct recommendation (call or email) for you as secure buyers is also a big help in putting you above the rest.
I sincerely wish all the buyers out there good luck. IF by chance you want to go a different route than publicly marketed properties, ie Zillow/MLS, you can try seeking out sellers on your own. Personal references sometimes work out, if you know someone in a particular neighborhood, ask them if they have any neighbors planning to sell, or are maybe on the fence. I would still recommend agency or at least a transaction agent to handle your paperwork, title company communications, and to explain and lead you through the process with the seller. But it is up to you!
It's important to have an edge in a hot real estate market; knowing where and how to find off-market listings can help.
