Despite the rough outlook for real estate at the start of 2020 due to the pandemic, buyer interest in real estate has remained strong in 2021, making for one of the most competitive buying environments we have seen for quite some time.
“If a home is properly presented and priced competitively in this market, you are going to be seeing multiple offers, often over the asking price. That’s just the way the market is right now. It’s a seller’s market, 100%!”Karen Anderson, Broker and team lead of The Prestige Team at Keller Williams – LA Harbor in Rancho Palos Verdes.
Karen’s statements are supported by market data reports generated by the California Association of Realtor’s (CAR). The current sales & price statistics for February 2021 showed nearly a 13.9% increase in home sales volume and 14.4% increase in sale prices compared to last year. Astonishingly, active listings are down over 36%, leading to an average days on market of only 10 days.
When the market gets competitive, it is all about standing out from the other buyers.
Can a typical buyer compete in an environment where we are seeing multiple offers all over asking?
Can a buyer with 5 – 10% down outbid cash and other offers with 20%+ down?
The answer is it depends, but YES – it is possible!
To give our buyers the best chance of getting their offers accepted in competitive markets, we recommend the following:
Know the market, know your leverage
Some buyers that are new to the market can try to be ‘expert negotiators’ and want to low-ball a new listing with no justification or reasoning to support our price. Unless we can justify a lower market value or have inside information that supports it, the absolute worst thing we can do is to submit a below-asking offer on a new listing in a hot market. Doing so will tell the listing agent three things:
- We are not familiar with the current market
- We are possibly fishing for a desperate seller
- We are not a serious buyer
Obviously, these are not things we want to convey to the seller and listing agent if we want our offer to get accepted. If the market is competitive, we must change our mindset and compete! If you fail to do so, none of the other items on this list will have as much of an impact.
Manage your expectations
The pandemic has given buyers who are still able to buy real estate a new sense of urgency to secure property. As more buyers compete for less inventory, some buyers have experienced frustration as they find themselves getting outbid seemingly every time they submit an offer. Managing your expectations is a key tactic when strategizing your home search.
Although discouraging, it is not uncommon for a buyer to modify their search criteria once they begin looking at homes. When competition is fierce, buyers will often need to submit several good offers on properties before finally getting one accepted.
Knowing this ahead of time can greatly improve your motivation during the search.
Double-check your purchasing power
In our experience, most bidding wars are often decided by as little as a few hundred to a couple of thousand dollars. Most of the time, the difference between the winning offer and the runner-up can be less than $5,000. However, the price a home ultimately sells for can be tens of thousands of dollars above the original asking price, and this can cause issues for buyers searching near the top of their price range.
In competitive markets, prices can get out of reach for some buyers if they do not have the financial means to keep up with higher offers. That 2 bedroom cosmetic-fixer that you could have purchased for $400,000 in the Fall is now getting bid up to $430,000 or more. Depending on your situation, you may have two options:
- If your max budget for a home is $400,000, you will likely not be able to compete in this price range. Instead, you may have more success by targeting homes that are listed slightly below $400,000, where you would have the capability to offer above the asking price if required.
- If your situation allows it, increase your budget to compete accordingly.
With either option, price plays a very big role when a seller and listing agent are reviewing offers, but the highest is not always the best!
The highest offer isn’t always the best
Although price plays one of the biggest roles when selecting an offer to accept, it is not the only variable that gets taken into consideration. The best offer and the highest offer are not always the same. A good listing agent will help identify the offers that are most favorable to the seller, not only the financial aspects of the offer but the terms as well.
Items contained in the Residential Purchase Agreement (RPA) such as the purchase price, down payment, loan type and amount, escrow length, contingency lengths, and any other relevant terms that are contained in the contract matter just as much as the offer amount. The more contingencies and/or ‘asks’ contained in the RPA, the more that is asked from the seller, and the ‘messier’ the offer is gets.
Keep the offer clean
In competitive environments, buyers asking for credits towards closing costs, asking the seller to pay for all transfer fees, requesting excessively long escrow length, or unattractive terms such as including a contingency to sell a home, asking for furniture/personal items, etc., usually sink to the bottom of the offer pile. That offer may be higher than the others, but if their terms are not favorable, the seller will often pass on that offer for one with more favorable terms, even if the offer is slightly lower. A smart realtor will always coach their client to go with the offer that has the most favorable terms and highest probability of closing escrow.
The RPA has other important components that can be used to negotiate aside from price. Things like initial deposit amount, contingency timeframes, and escrow length can be used to greatly leverage your offer past others. When you are facing competition as a buyer, the best way to stand out is to write a clean offer.
Learn more about writing Clean Offers.
Work with The Prestige Team
As a top rated Real Estate Team, Karen Anderson and The Prestige Team close 60+ homes per year, so we get a first-hand feel for what the market is doing. Educating the buyer and/or agent to the current market is one of the most important things you can do to improve your buying experience and chances of getting your offer accepted.