How do I make an offer in Austin’s hot real estate market?
In Austin’s competitive market, roughly 52% of offers face bidding wars among buyers. People are continuing to move here for jobs, the resilient economy, and the cultural atmosphere. Austin is trying to keep up, but there has definitely been an inventory shortage in housing because of the massive growth. This means there are more buyers than houses for sale in the Austin real estate market.
There are a few simple things that can put you ahead of other buyers and make this experience a pleasant one. Basically it all comes down to being a strong buyer. A strong buyer not only works with a lender early on in the search process, but also puts in time and effort for education and planning. Put in the effort to educate yourself on the buying process. Communicate and correspond well with your loan officer and Realtor.
Make sure you’re prepared to make moves fairly quickly if you want a home in a popular neighborhood. And because of the competitive nature, rejection can happen frequently. If a seller doesn’t choose your offer, don’t let it get you down. YEP, easier said than done, so let’s go over strategies to use so you will hear fewer NO’s.
1.) GET YOUR LOAN OFFICER INVOLVED.
When you put an offer on a home, it may be a good idea for your loan officer to call the seller’s Realtor. This is done not only as a friendly introduction, but to also reassure the seller’s Realtor that you’re a qualified buyer. There are a lot of “over promise, under deliver” situations that I’ve seen from lenders. If a loan officer for a potential buyer is the type of person to call and communicate well with me—major brownie points in my book! Listen to your Realtors suggestions for who to use as a loan officer. Having a lender with a good reputation is very important when submitting an offer in a hot market. Everybody wants a smooth and easy transaction, and this will happen with a team who communicates well and often.
2.) PUT IN SOME EFFORT!
I tell clients to write a note to the seller explaining why they will love and cherish their home, and attach a picture. Put in the effort to make this “business transaction” more personal. This isn’t just money and cement, it’s your future home. Maybe you will raise kids and grow old here! The seller may not care, but it could tug at their heartstrings. That being said, no matter how much you play on the seller’s emotions, you won’t win a bidding war with a low-ball offer and a cute picture of your family. The most important reason to write a letter is because of the EFFORT it takes to do so. Although it’s a sellers market in Austin, there are also cons for the seller. Inventory is low and buyers may put offers on multiple properties in hopes of having at least one accepted. If all the buyers offers are accepted, they get to choose which one they want. By putting in the time to write a personal letter, your offer may stick out.The letter shows you want their home and their home specifically.
3.) CONSIDER USING A CONVENTIONAL LOAN VS FHA.
An FHA loan (Federal Housing Administration) is a government-backed loan and allows people to buy a home with a down payment as low as 3.5%. Unlike a conventional loan, with FHA you need to meet two sets of qualification criteria: the lender’s criteria AND the government’s. By insuring the mortgage, the government is basically guaranteeing that the lender will be repaid even if a buyer stops making mortgage payments. This program can be great for people whom otherwise may not be able to afford to buy a home. BUT there are some reasons a seller may be concerned with an FHA buyer. When a seller and an agent review offers, a buyer’s financing is considered up front along with the down payment amount. A better loan is a better offer, if all the other contingencies are equal, a better loan has the best chance of closing. All FHA concerns stem from these questions: Will this person be approved? Will we actually close on time, or at all? Talk to your lender and Realtor to figure out the best loan strategy for you.
4.) SHORTEN YOUR OPTION PERIOD.
Your option period allows you time to get an inspection done, negotiate further and even terminate the contract. The only penalty of terminating the contract before the option period would be losing option money and this can be as little as $100. What would you do as a seller? If you had 2 offers and each offer was the same in every single way except one contract had an option period of 5 days, and the other had an option period of 11 days? You would chose the 5 day option period because the buyer would have 6 fewer days to terminate the contract.
5.) GET “CONDITIONALLY APPROVED” AND WAIVE YOUR FINANCING CONTINGENCY.
Many people don’t know that when you go under contract, it takes 35 to 45 days to close because your lender is working towards final loan approval. When you make an offer on a house, a section of your contract discusses how long you have as a buyer to secure your final loan approval from the lender. This is referred to as a “financing contingency clause”. If you are not approved within the time frame written in the contract, you can potentially break the contract with little to no loss.
You can possibly waive this financing contingency in your offer if you’re conditionally approved, making you pretty appealing to a seller. A buyer is conditionally approved once they have confirmed all financial and credit information and have proved they’re a good risk to their lender. Basically, this means you’ve already provided your lender with a lot of information and they feel confident that you’ll get final approval of a loan before the date you close on the home. Being conditionally approved lets the seller know that you’re a less risky buyer. Discuss this strategy with your lender before waiving the financing contingency!
6.) OFFER OVER-LIST PRICE.
In some areas and in certain situations, it may be a good idea to submit an offer over list price. Your Realtor will help you with this by sending you homes stats that have sold in the past year and advise you accordingly.
7.) A QUICKER CLOSE.
Once you go under contract, it usually takes 35 to 45 days to close on a house. But, if you decide to close sooner in order to appeal to a seller, make sure you’re clearing it with your lender first. This may be possible if you have provided your loan officer with everything they’ve asked for upfront. It may be even more likely if you’re conditionally approved.