The Waterloo Region Homebuyer’s Go-To Guide to Beating the Competition in a Hot Housing Market
It's no secret that buying real estate has turned into a competitive sport in Canada these days.
In a hot market, the supply of homes for sale is limited, but demand for good housing is high. When purchasing a home with a mortgage, buyers are frequently faced with bidding wars and all-cash bids. Homes often sell for considerably over the asking price in the most competitive markets, such as the Waterloo Region.
If you’re looking to finance a home, putting in a competitive offer can be a challenge. How are you supposed to beat multiple bids, not to mention all-cash offers?
The good news is that it can be done. Here are some go-to tips for staying competitive in today’s cutthroat housing market:
Prepare Yourself for the Journey to Home Ownership
When it comes to buying a house, what should you do first? Ensure that all of your ducks are in a row. Let's face it: buying a house is a stressful experience.
The more preparation work you can do ahead of time before entering the market, the better. Here are a few things you can do to prepare for a competitive market:
Get Your Financial House in Order
Before you start looking for a house, be sure your finances are in order.
This involves saving up a large sum for a down payment, working to improve your credit score as much as possible, and consulting with a trustworthy financial advisor to ensure your financial situation is sound enough to purchase a new home.
When it comes time to finance, pull your credit report to make sure there are no blemishes that need to be fixed or explained. Your offer will be stronger if your financial situation is as good as it can be when you start the home-buying process.
Gather All The Paperwork
Buying a home involves a substantial amount of paperwork. Start gathering all of the paperwork and information you'll need before you begin the process to make things easy on yourself.
You'll have plenty of time if you need to order copies of any missing documents this way. Keep in mind that paperwork difficulties can cause loan delays.
The paperwork we're talking about here involves a lot of financial stuff, but you'll also need things like proofs of recent previous addresses, and your recent previous employment history. You'll also need ID documents. If you are not sure what you'll need, ask the real estate agent you choose to help you on your hot market home buying quest to guide you.
Do Some Initial Research
Not only do you need to prepare financially, but home shopping requires quite a bit of research.
Compare mortgage lenders, look into real estate agents, and research neighborhoods, so you understand the local market. Take advantage of everything that’s out there: listing tools, blogs, real estate reports and the expertise of your local real estate professionals.
Knowledge is a powerful tool. When the time comes, knowing the ins and outs of your market will help you put together the best offer possible.
Choose the Right Real Estate Agent
Finding the right real estate team is a huge advantage in a competitive market. A good agent with a lot of experience will act as your advocate, and help you navigate a tough market with ease.
This research should involve more than just choosing the first Google result in a general search. Check out a real estate teams' website, blog, social media and, increasingly important and helpful today, their testimonials and reviews. Then, if they look good, talk to them. As in actually talk. You need to get on with these people. If they annoy you, or don't seem very communicative, a stressful process is only going to get even more fraught!
Consider Working With a Local Lender
Are you aware that a local loan officer can assist you in winning a bidding war? What it boils down to is that local relationships are critical in a competitive market.
A good local loan officer quickly comes to the attention of the agents helping to review bids. “Oh, they were fantastic last time, I know these people!” they think when they see an offer with the loan officer's name on the pre-approval.
Furthermore, a lender with local connections can provide you with quick service. In a fierce market, time is of the essence.
A national lender may not give your application the attention it deserves, or they may not be aware of the local financing requirements in your area. You may be passed around from loan officer to loan officer, with no single point of contact to help you navigate the process.
Meanwhile, a local boutique lender will usually be familiar with your particular market and know how to get you to the closing table faster and with fewer snags. Inquire with potential lenders about their track record of closing loans in your area and what they'll do to ensure you can close promptly.
You should also find out whether they utilize local appraisers. A qualified local appraiser is familiar with each neighborhood's ins and outs, as well as the differences in home values from one block to the next.
Finally, inquire about having a dedicated loan officer to assist you during the process. This can help in getting answers more quickly and accurately. And to beat the competition, you'll need every advantage you can get.
Strengthen Your Offer
A property offer can be strengthened in a variety of ways. Here are some things to think about while buying in a competitive real estate market:
A strong pre-approval or conditional approval should be included.
You'll need a solid pre-approval or conditional approval to have your offer considered even if there's an all-cash offer in the mix.
Simply put, you want your lender to complete as much pre-approval underwriting as possible before you make an offer on a home. This demonstrates to the seller that you are a serious buyer who is capable of obtaining proper financing for the property.
Offer a Larger Earnest Money Deposit.
An earnest money deposit (EMD) demonstrates to the seller that you are a serious buyer who is ready to close on a property.
Typically, a house seller will require an EMD, and buyers will typically put down anywhere from 1% to 3% of the purchase price. However, in competitive markets, buyers are more likely to put down a larger deposit, up to 10%.
Consider putting in a competitive EMD that will set you apart from the competition if you want to convince a seller you're serious about their home.
Ensure Your Offer is Complete
All applicable disclosures, paperwork, and information that the seller requires to make a decision should be included in your offer.
When a seller receives multiple bids, incomplete proposals may be discarded.
This is the time to pay close attention to details and ensure that everything is covered in order to keep your offer viable.
Make a Higher Than Average Offer
Offering more than the asking price is one way to compete with cash. Cash purchasers frequently make offers that are close to (or even slightly below) the asking price.
Cash buyers are aware that their offer is already appealing: it is simpler, faster, and more certain than a loan offer.
Bidding more than the asking price is one strategy to combat this. In a competitive market, homes frequently sell for more than the asking price, so this is to be expected. Consider including an escalator clause in your contract, which indicates that you will match any rival bid up to a particular price point.
Offer a Larger Down Payment
Another strategy to boost your offer is to make a hefty down payment. Of course, it's conventional wisdom that when buying a property, you should save as much as possible for a down payment. It is, nonetheless, more vital than ever in a competitive market.
You want to demonstrate to the seller that you can afford this home and that your financing will most likely be approved. A large down payment can signal to the seller that you are a serious buyer who is willing to put his or her money where his or her mouth is.
Accomodate the Seller's Closing Date Timeline
A home seller is usually working on a schedule. They may have another home they're looking to buy, or they may need to sell in order to start a new job.
Regardless of the cause, practically every seller has a preferred sale timeline. And not everyone is looking to sell as soon as feasible.
Agreeing to accommodate this timeframe is one way to entice a seller into accepting your offer. If the seller wants to sell the house quickly, you should structure your offer accordingly. Or, if they need it, you could add a concession in your offer if the seller has to stay in the home for a few months to finish a school year.
In the end, you want your offer to satisfy the seller's requirements.
Remove Contingencies - But Carefully
Things don't always go as planned, as everyone who has ever bought or sold a home knows. When it comes to choosing an offer, this makes sellers uneasy.
Few things are more aggravating for a seller than having a sale fall through weeks into the process and having to restart from the beginning. Around 5% of real estate contracts are terminated before they close, and many more are delayed due to finance concerns.
It's easy to see why many sellers prefer the definite thing — cash — over the mere prospect of a buyer obtaining financing.
When competing with cash, what is one of the most effective ways to make your offer more appealing to a seller? Getting rid of the contingencies.
A contingency is a clause in a real estate contract that states that specific circumstances (such as financing or a home inspection) must be met before the sale can go through.
You're telling the seller, "I'm ready to move on this thing, and I'm going to eliminate as many obstacles as possible to make this deal happen," by removing some of these contingencies.
Before deciding to waive contingencies, consult with your real estate agent and/or lawyer to ensure that you are fully aware of the dangers involved. While eliminating contingencies may make sense for highly qualified borrowers, you should be aware that doing so may put your earnest money deposit at danger if the deal falls through.
Send a letter to the seller.
One last piece of advice to give your offer a leg up on the competition? Write a letter to the seller explaining why you're making an offer and what you like about the house.
These letters should be brief, pleasant, personal, and to-the-point.
If you're planning renovations or want to rent out the space, that's probably not going to make anyone happy. So try to concentrate on the positive aspects of the house and how good of a neighbor you'll be.
Remember that purchasing and selling a home might bring up a lot of emotions. Don't assume the seller is simply interested in making a profit. They're probably also considering the legacy of their family home and the impact you'll have on the neighbourhood.
If you portray yourself as someone who will take good care of the house and be a considerate neighbour, you'll be well on your way to getting your offer accepted.
Getting ready to buy a Waterloo Region home, or sell the one you own? Let Team Pinto use our huge experience and expertise to help you. Contact the award-winning Team Pinto here, or book a free Zoom consultation to discuss your unique Waterloo Region real estate needs here.