By James Doerfel
Designated Broker
In their attempts to navigate the 2020 housing market many buyers are finding their own circles of Dante’s Inferno. Despite enjoying the expanded buying power of record low interest rates, inventory shortages have continued to flummox buyers all over Western Washington and beyond. In some markets, for every property that hits the market, there are ten or more qualified buyers vying for it. Where that kind of imbalance between supply and demand occurs, those on the demand side of the equation find themselves at a real disadvantage. In the past six months, I’ve worked with dozens of buyers who have swung and missed so often they’ve grown tempted to throw in the towel.
In these trying times, I advise a number of steps buyers can take to tilt the game in their favor
Get your financing lined up ahead of time
Automate your searches
Create a race to “yes” (let’s act)
Streamline your offer-making
Without getting emotional, play your seller’s emotions
Adopt a numbers-game approach to home buying
When I say “get your financing lined up ahead of time” I’m not just talking about getting a pre-approval letter from your bank. I’m talking about understanding what makes an application attractive to a lender, and then taking the necessary steps to make your application look like that. I’m talking about understanding what makes a pre-approval letter attractive to a seller, and then doing everything in your power to make your pre-approval letter look like that. For instance, paying down revolving debt not only boosts your credit scores, it makes your income qualify you for a larger loan amount at the same debt-to-income ratio. Boosting your credit scores by disputing errors and maintaining several months of stable reserves accounts and can be a compensating factors for underwriters as well.* [note: it doesn’t always help to pay off old collections. Ask a credit coach for how the algorithm works that generates your credit score.] If you’re buying a second or third piece of property, consider refinancing your existing properties. With interest rates at record lows and property values at record highs, leveraging your equity can allow you purchase your next property with cash or to bring a sizable down payment. Sellers know that cash offers close reliably and that offers with conventional financing and large down payments close nearly as reliably. When reviewing multiple offers, those will be preferred. Strong proof of funds or pre-approval letters from reputable lenders can make the difference between a seller choosing to work with you or choosing to work with your competition.
New properties are hitting the market all the time, and the buyers who see them first and act first have a natural advantage. If you search for properties every day when you get home from work, you’re still seeing properties as much as 24 hours after other buyers. And if a property looks good to you it’s a safe bet it looks good to other buyers like you. Sit down and carefully define your search criteria. Define your non-negotiables and define your negotiable. Consider features which you’re willing to pay a little more to have (e.g. a third garage bay) and which features you’re willing to forgo if the price is right. Discuss your criteria with your agent. He can automate a property search that notifies you the minute a property, which checks all your non-negotiables boxes, becomes available. If you are busy at certain times of the day, talk to your agent about what actions he can take without your authorization. At very least, have him open a dialogue with the listing agent to make sure a seller knows you are interested and doesn’t accept another offer before you’ve had the chance to act.
If your search turns out a property that checks all your non-negotiable boxes it needs to be acted upon. Only those who take action purchase properties. Once again in consultation with your agent, come up with an action plan that puts your best offer in the seller’s hands in the shortest amount of time. There are questions you will want to answer before you write an offer and questions you can wait to answer until after you are in contract. Pro listing agents advise their sellers to provide a stack of due diligence up front to agents who request it. The very act of asking questions can build rapport. There are times when it is prudent to use an escalation clause, and times when making a quick offer and asking for a quick response wins the race. The most tragic missed opportunities in real estate happen once you know a property is right for you and somebody else acts first to snap it up on terms you could have bested.
Have a conversation with your real estate agent about the ways a purchase and sale agreement protects you as a buyer and how it obliges you to perform from mutual acceptance to closing. Do some role play. Run different scenarios. Find a deliberative space where you feel safe to take bold action. Put yourself in the sellers’ shoes. Assume there will be multiple offers they have to choose from. Talk about how to stand out from the bunch. Talk about how to discover and appeal to the seller’s humanity. Talk about how to streamline your contingencies. It may be prudent to do your diligence up front. Consider how earnest money factors into a seller’s thinking. Is there a point in the process, beyond which you are prepared to release some or all of it to the seller? Read through the clauses in your financing contingency. With an aggressive offer, there a chance that the property appraises less than your offer price. There are ways to show a seller that you will close on the purchase, even if the appraisal is less than the sale’s price. A pro agent has that verbiage ready at hand and will include it with your offer.
If the seller indeed has multiple offers to choose from, besides a strong proof of funds or pre-approval letter, and a well-crafted offer, what else can you, the buyer, do to stand out from the crowd? A carefully crafted cover letter, can make the difference between the seller engaging you and the seller engaging your competition. The cover letter I like to use, introduces the people who will be moving into the home (adults, kids, pets, extended family, etc.), where you work & what you do, where & how you play, your ties in the community & how you give back, what you love about the property and one concrete detail that makes it the perfect fit (e.g. the oversized garage is perfect for our camper). Include photos for maximum impact. Your agent also plays an important role making your case for you to the sellers. An agent who is experienced representing sellers can ask the right questions to expose the motivations and psychology of a seller, he can simulate the sellers’ decision making, and craft your offer in such a way, that a seller will respond favorably.
Most sellers are motivated primarily by profit, but few sellers are motivated exclusively by profit. Timeframes matters. Contingency matters. Terms matter. Non-monetary considerations matter.* (Note: I’ve crafted thousands of offers over the years, and can give dozens of examples of non-monetary considerations that made the difference).
With so many buyers out there the likelihood you get your very first offer accepted as you’ve written it, is low. So it pays to go into the homebuying game with the intention of making many offers. This attitude is not only realistic it is pragmatic. If you don’t swing at strikes, you will never get on base. It protects you against disappointment when the seller decides to go with another buyer and you will be pleasantly surprised when your offer get accepted. If you have pros on your team, pace yourself, approach it with the right expectations and make decisive offers on your terms, it is only a matter of time before you find yourself closing on your next property with no regrets.
A real estate professional for the 21st Century, James uses data science & intention modeling to develop the human connections that move us, the professional techniques that inspire trust, and the property intel that transforms the spaces we inhabit.
James Doerfel | Designated Broker
(425) 221-5111
Comments