How to Help Yourself
Whether buying a home or doing a sell/buy, the first step is always the same: develop your financial strategy for the move and prepare as needed.
1. Get pre-qualified for a loan before you start looking at homes
Seems simple, yet if you’re a buyer submitting offers on well-price properties in the Denver market, you’ll likely be competing with other interested buyers. A loan pre-approval (meaning, as a buyer you’ve gone further into the loan approval process with your lender by having them review your financial information) will help your cause in a multiple offer situation.
2. Hire a Buyer Agent / Realtor who knows the market AS WELL AS how to communicate effectively with the listing agent.
Again, seems simple yet it's becoming more & more obvious to consumers that not all agents are created equal, and not everyone has a commitment to being a Realtor full-time. Interview on referral and hire based on a combination of character and experience.
How Your Agent Can Help You Negotiate
When submitting an offer, Buyer Agents should be asking the Listing Agent some or all of the following questions, whenever they find themselves in a competitive bidding war (the following assumes the Buyer is in a competitive bidding war and has decided to bring their A-game since they've fallen in love with the home):
1. “In regards to the offer, what’s most important to your seller?”
In a seller’s market, Buyer Agents MUST ask this simple question every time an offer is submitted, without exception. The answer from the listing agent may be surprising! A final net $ result to the seller may not be the ultimate deciding factor if all competing offers will result in a similar net to the seller.
For example, some sellers want the new owner to live in the home forever, while other sellers want to know that the new owner appreciates characteristics of the home that the sellers have improved. Alternatively, a seller may have recently experienced a deal fall through due to the buyer losing a job, etc. and now wants the new buyer to have a stronger loan approval/job history, etc.
It runs the gamut as to what motivates a seller, and this motivation can change on a dime. This is why the buyer agent must pose this question to the listing agent every time, without fail, to know how to approach the offer.
2. “Does your seller have a preference for a close date?”
Often times, sellers in today’s market are selling & buying immediately afterward; as such, many times sellers will write a contingent counter offer that allows them to find a replacement home within a certain timeframe prior to moving forward with the current contract. So…terms may be just as important as price and a seller may choose an offer that has better terms, plain & simple.
Said another way, Buyers must put themselves into the shoes of the seller in an extreme seller’s market and realize that timing may actually be the ultimate driver in the seller’s decision process.
This begs another question…for sellers who prefer a quick sale, is the buyer working with a lender who can close in 30 days or less under the new Federal TRID rules? Not every lender can do this! If the lender can close sooner than other competing offers, this may provide a competitive advantage for the buyer.
3. “How does the seller feel about the buyer waiving the appraisal?”
Many times, in a competitive seller’s market a buyer may be willing to offer as much as $10K - $15K above the list price (or more) to win a bidding war. When this happens, there’s an increased risk of the home not appraising, particularly in the first quarter of a calendar year, when inventory is lower yet buyers are already out in force.
Just know that if the buyer chooses to waive appraisal, the Buyer Agent should be prepared to provide some type of proof of funds w/ the offer showing that the buyer has these additional funds available in their bank account.
Knowledgeable listing agents will do their due diligence with all offers, including a check-in with the lender requesting a proof of funds letter from the buyer’s bank if the appraisal is being waived. This is a smart thing to do, especially when the offer is substantially higher than recent neighborhood sales.
4. “How does the seller feel about the buyer waiving inspection?
This approach has become much more popular with buyers since Denver metro has had an influx of people moving here from out of state. At first blush, giving the seller fewer headaches with inspection seems better, right? Not necessarily.
I’ve heard anecdotally from a few real estate attorneys that during 2015 there was an increase in lawsuits that centered on the seller’s non-disclosure of material defects after the buyer agreed to waive inspection. Essentially, buyers were waiving inspection, then suing sellers after closing for any items the buyer deemed a material defect that wasn’t disclosed by the seller.
The 2016 real estate contracts now have language that the home is sold “As-Is” beyond whatever is in the contract and/or disclosed via the Seller’s Property Disclosure, which (hopefully) deters future lawsuits when buyers choose not to do inspections.
Why should your Buyer Agent bring this up with the listing agent? The bottom line is that BOTH parties should want to have an inspection for everyone’s benefit. Just because an inspection was conducted doesn’t mean the seller has to fix anything. With that said, having the inspection done may lessen liability for both parties since more issues are disclosed upfront about the property.
If you & your Buyer Agent are competing with other buyers who are touting “I’ll waive the inspection” can approach the offer differently, claiming there will be additional peace of mind for the seller if the parties *agree to have an inspection and acknowledge that the buyer will pay for any required fixes not covered by the seller’s insurance.
Another tip is to have the Buyer Agent pay for a 1 yr. homebuyers warranty at closing for the buyer. We’ve been paying for these homebuyer warranties for our clients since the warranty lowers risk in the deal for all parties, plain & simple. From a seller’s perspective, it’s an added bonus as well.
5. “How important is a cash offer to your seller?”
Obviously not every buyer can pay cash, yet there’s still A LOT of cash in the market. If this is a legitimate option for the buyer, they may opt to compete against other buyers with cash, then obtain some form of cash-out financing after they’ve closed on the property.
Don’t assume your buyers (or one of their relatives) don’t have sufficient funds to purchase a home with cash. Buyer Agents should be asking their clients if a cash purchase may be a realistic option, given the realities of the Denver market and the intense competition. It’s the buyer agent’s job to present all options to the buyer so they can make the best decision possible.
6. “Would you mind if my lender gives you a call to talk about my buyer’s qualification to purchase this home?”
All Listing agents are not created equal…some will not conduct their due diligence when considering offers, and others will not.
As a listing agent, I’m always impressed when a lender calls me on behalf of their buyer. It creates a positive impression, and may be the difference-maker if all offers are very similar, etc.
A knowledgeable lender can put a listing agent and seller at ease by providing more detailed information and “selling” the buyer’s offer. Of course, the lender is limited to what he or she can communicate regarding the buyer, yet certain key statements can be made as to the buyer’s qualification.
Whatever the listing agent hears the seller will also hear! In an ultra-competitive seller’s market, it’s important for the Buyer Agent to understand what is most important to the seller. It could be the difference between success and failure.
Every deal is different. There are negotiation approaches that work in certain situations and not in others. Without an experienced Realtor/Buyer Agent asking questions and recommending *realistic courses of action, success in landing the perfect home may be diminished!
Also, some of the suggestions above may not apply if the home is overpriced and the seller is unrealistic. As such, choosing a Realtor and lender you trust implicitly is key…someone who has your best interests at heart will work to help you make the best decisions.
When you jump into the market, your Realtor should have accurate knowledge of recent neighborhood sales to such an extent that if/when you do decide to make a more aggressive offer in a competitive seller’s market, you’ll know well in advance your own limits for any offer.
Feel free to reach out if you have any questions!