July 14, 2021
Whew — it's getting hot out there!
No, we're not talking about the temperature... we're talking about the real estate market. For the last few years, the U.S. has experienced a hot "seller's market," or a situation where there's more demand for homes than there are homes for sale.
This is great if you're thinking of selling your home. But for home buyers, a hot market means lots of competition... and that means making creative real estate offers.
Why? Because when a seller receives multiple competitive offers, you've got to figure out how to make your offer stand out.
Read on to learn more about how to make creative real estate offers so you can compete in a hot market.
How do we know when a real estate market is hot? It's based on factors such as how many months worth of unsold houses (inventory) are available, average days on the market, and average offers per home.
These numbers indicate how long it would take to sell all homes currently on the market if no other homes were put up for sale or built. (Of course, this isn't how it works in real life as people are always building, listing and selling homes, but it's a good way to take the market's temperature.)
Market trends are based on other factors, too. The National Association of Realtors tracks these statistics and releases regular reports. These indicators include:
Recent numbers indicate that we're still in a strong sellers' market. Over the last year, the nation-wide listing inventory has gone down by more than 43 percent. If you add pending listings into the mix, the total inventory of unsold homes has declined by over 20 percent year-over-year.
On the other hand, the amount of newly listed homes has increased by 5.5 percent from a year ago. In some large metro areas, listings increased by almost 12 percent from 2020. Looking at these numbers historically, though, the listings are still very low overall.
Of homes that sold, the average house spent 37 days on the market in June 2021. In June 2020, this average was much lower, with homes spending 72 days on the market.
These numbers highlight the fact that it's a sellers' market. That means making strong, creative real estate offers is key.
When a seller is receiving multiple comparable offers, you've got to make yours really shine. These tips teach you how to make an offer stand out.
In a hot market, buyers often bid above asking price. An escalation clause is a provision added to your offer that says you'll go above the highest price submitted. This clause means your bid is automatically escalated, without the need to resubmit a new offer.
The clause includes a maximum amount that you won't exceed. Just make sure you can afford that amount.
An appraisal gap clause can make your offer more attractive. Often, appraisals come in below their contracted price (especially in hot markets when buyers are trying to outbid each other.) This can cause financing, and the home sale, to fall through.
For instance, say home is listed at $400,000, but goes under contract for $450,000. If the appraisal comes back at $400,000, the buyers might either must make up that $50,000 difference or the seller must drop the price.
An appraisal gap clause says that you've got the necessary funds to fill that gap. Again, just be sure you can actually shell out the additional money, and be aware you're paying over market price.
Earnest money deposits indicate that you're a serious buyer. Usually, this deposit is 1 to 2 percent of the purchase price, but there's no rule that says it must be this low.
You can increase the earnest money deposit to indicate your interest and sweeten the deal. You can even make it non-refundable... just be cautious.
Many home sales fall through during the inspection period. It's easy to see why, as this is the time for potential buyers to assess the property and uncover any potential issues.
Shortening the inspection period to three or four days rather than the standard 10 days may sweeten the deal. That way, sellers know they can get the home back on the market quickly if a problem arises.
Imagine a seller receives multiple comparable offers, all with the same price point and similar contingencies (or lack thereof). Many sellers aren't sure which buyer to choose. A creative offer letter that personalizes the buyer can tip the scales.
Sellers may feel a strong attachment to their home and the memories they made there. When given the choice, they're likely to choose buyers that love the home and want to take good care of it.
Showing this through a personalized real estate offer letter may be enough to swing the buyer. A handwritten offer letter that lays out why you want the home may just do the trick.
Though creative offers may not be standard, they still must follow the rules (and the law). That includes the guidance as established by the Fair Housing Act, which exists to stop potential discrimination in housing based on factors such as national origin, sexual orientation, race, color, gender identity, religion, disability status or familial status.
When crafting an offer, be sure to leave out information that could link any of these identifiable factors to the buyer.
A hot real estate market can feel overwhelming for home buyers. With so much competition, making an offer stand out from the crowd of potential buyers is key. Following these tips can help turn an offer into a winner.
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