How to Beat Out Competing Offers and Land Your Dream Home
The 2020 real estate market is a multifaceted and complicated beast, but in many areas, including Colorado, sellers have the upper hand. Interest rates sit at record lows and despite the financial struggle many are suffering right now, demand for homes in the Colorado Springs area sees double-digit growth over the last year each month.
Even without historic interest rates like these, buyers in hot markets like Colorado Springs must prepare themselves to lose and lose again, it seems. Supply is simply lower than demand when cities explode in popularity (and we can hardly blame people for wanting to move to Colorado Springs!).
Does that mean I recommend that my clients give up on finding their dream home and settle for a house they don’t absolutely love?
Of course not.
While nothing is a guarantee, I’ve got a few tried and true strategies I guide my clients through that can help us win when competing with multiple offers on that home we just can’t stand to lose.
1. Escalation Clause
My first step when we’ve decided to make an offer on a home always involves giving the listing agent a call and asking whether there are any competing offers already. If there are, the escalation clause is the most common course of action and one I take frequently when competing with other offers on a home.
We can write an escalation clause into our offer that communicates that we’ll pay a fixed amount above other offers, up to a certain amount, and only if we are competing. For example, if a home is listed at $350K and I hear that we’ve got competition, we could add an escalation clause with a cap you’re comfortable with - $370K, say. If those other competing offers only climb up to $360K, the clause saves us from throwing that extra $10K in unnecessarily.
This strategy is common and lower-risk because it allows us to compete fiercely without promising more money than we can pay or than is needed.
2. Appraisal Clause
Depending on how the home appraises, an escalation clause may also require us to add an appraisal clause. In an appraisal clause, we waive some of our opportunity to object to the outcome of the appraisal, but we gain the ability to pay more for a home than the lender could have covered due to the appraised value.
I guide my clients through this strategy in the event that they’ve got the cash available to close the gap between the amount lent and the amount offered. To extend the example we established for the escalation clause, say that the home listed at $350K also appraises at $350K. In order to include the escalation clause offering $370K, we need an appraisal clause to cover the difference between what the lender will cover and what we’re offering. The need for this clause can be complex and involve lots of back-and-forth between the seller’s agent and the lender, but the main consideration for whether we’d include it comes down to the buyer’s available cash.
3. Inspection Clause
Including an inspection clause in our offer tells the seller that they don’t need to worry about specific items in inspection, because we’re waiving our rights to object to them. Of course, specifying which items we waive for inspection is key; I never recommend waiving inspection of items that pertain to health and safety.
In order to decide whether to include a clause like this, my clients and I talk through two important questions. First, does the home seem to be well-maintained? Have we done a walk-through to ensure that, to the best of our knowledge, everything is in good shape? If that answer isn’t a yes, a clause like this can end up extremely expensive for the buyer.
Of course, a quick walk-through is not a guarantee and isn’t a real substitute for inspection - this clause is a risk. So, if the home appears to be well-kept, we’re still left with the deciding question: how badly do we want this particular house? Is it worth the risk? With a yes to both, we can choose to move forward on the inspection clause.
Through the years, I’ve helped plenty of clients exercise all three of these strategies when making a competing offer on a home they love. There’s no better feeling than hearing we’ve beat out other offers and landed that dream house! I’ve also seen success with a number of pairings of the strategies. Working with an experienced buyer’s agent is the best way to ensure you’re properly addressing the complexities and case-by-case nature of the competitive house hunting process in your offer.
In using any of these three strategies, it’s important to work with your agent and use caution to ensure you’re still getting the home of your dreams at a fair price. No matter the toughness of the current market, the home for you is out there! I hope that I can help you find it. Contact me to talk through any of these in more depth!
