by Mark Pruner
I wrote an article a couple of years ago about combat buying or how to be the prevailing buyer in a hot market. The article came down to basically, do your homework, be prepared and move quickly. This works well when the house that you want has just come on the market, but what do you do when you are not the first one to find the house.
First you need a good Realtor. There is probably no better time to have a good Realtor than when you are in a competitive bidding situation. So let’s take a look at what you can do at each step of the offering and contract process.
- Interest expressed – If your Realtor tells you that other parties have expressed interest in the property it usually means that other buyers have been back two or three times and/or are asking serious questions about the property such as when was the roof last replaced or how many bedrooms is the septic system approved for.
The solution when you hear that someone else is exploring an offer is to make an offer first, and make it a good one.
Obviously, a high price is going to be attractive to a buyer, but don’t only focus on price also match the seller’s needs. Do they want a quick close or a delayed closing, is a lower all cash price better than a higher price with a mortgage contingency and so on? The highest priced offer doesn’t always get the deal.
You want to make it a high offer so that the other interested parties may decide to not even bid. You may pay a little higher than the other side was willing to go, but you may also save yourself from getting in a bidder war with two, three, or even more buyers. In a bidding war many people show their competitive nature and will offer more than they had originally intended just to “win” the bidding war. It can be a Pyrrhic victory.
- Offer made – If another buyer has already made an offer you need to move quickly and make your own offer. You need to alert your house inspector that you may need them to do a house inspection on short notice and your attorney that they may need to turn around a contract quickly.
- Offer accepted – If an offer has already been accepted, you are not out of the game. The rule in Greenwich is that there is no deal until the contract is signed. So if it is the perfect house go ahead and make an offer. Submit your highest and best offer and if possible without a mortgage contingency. Even if you are going to get a mortgage you don’t necessarily have to have a mortgage contingency. You just have to be sure that you can close if the bank financing falls through. In an absolute worst case scenario can you get financing from a rich uncle or is there a co-signer with good credit ready to step up.
- Inspection completed – If the offer has been accepted and the other buyer has completed their inspection, your offer needs to be much better than the accepted offer. At this point the seller is mentally well down the road to selling the property to the other buyer so your offer has to look significantly better than the offer they have already accepted. Your offer needs to meet all the seller’s requirements. For example, an all cash, quick close offer with no inspection and a significant price premium might do the trick.
Going without a house inspection is not a good idea, unless you are planning on tearing the house down or doing a gut renovation. Also if the other buyer is moving to change the deal terms after the inspection that’s a red flag there may be a problem.
The buyer who wants to renegotiate after the inspection may, however, be a buyer that takes every opportunity to whittle down the price. Never under-estimate the fury of a seller that thinks they have been deceived. I’ve seen sellers take less money just to spite the “jerk” who was trying put one over on the them. If you are the first offeror don’t be that jerk. If you are the second offeror be ready to move quickly if the other buyer turns out to be a jerk.
- Contingent contract signed – Once a contract is signed with a mortgage contingency control of the deal shifts from the seller to the buyer. The buyer now has the ability to call off the deal if there is a problem with the financing. The seller is bound if the buyer wants to go through with the deal. Even if you are late to the game you may have an opening if the other buyer has a financing problem.
The new TRID rules are making things more complicated and appear to be delaying closings. Buyers, particularly in competitive bid situations may not be requesting enough time to actually get a mortgage approval. If the other buyer has to ask for an extension, the seller has the option to turn them down and accept your offer. You need to let the other agent know that your offer is a continuing one.
- Fully executed contract – You would think when the contract is fully executed, also known as binding or as our MLS calls it pending that you are out of luck, and you probably are, but people are people. If you really absolutely have to have that one particular property and price is no object you could consider paying the buyer to terminate the contract. This wasn’t even common pre-recession, but now that nearly every buyer is a value buyer it rarely happens, but any contract can be terminated if all parties agree.
Before you start looking at ways around a contract whether a contingent or pending contract talk to your attorney. You don’t want to get involved with a tortious interference with contract claim or some other lawsuit. There are ways you can do this and ways that will almost certainly guarantee trouble.
Your best option as always is to get to the house before anyone else has expressed an interest and make a good offer first and be prepared to sign the contract quickly. If someone else got there first show the seller that you are the better prospect and move quickly so that a third buyer doesn’t beat out both of you. Good luck!
Interim April Market report
Buyers are signing contracts like crazy and making offers. I’m negotiating on three deals now. Despite this market activity, April looks like it is going to be another poor month just as March was. Part of this may be that some sales got moved into our record sales in February of this year and part of may be that closing are just taking longer as the finance rules have gotten more complicated. Regardless, it is a strange market.
We have a 133 contracts up 40 contracts in only 3 weeks. At the same time inventory has gone up dramatically to 634 single family homes from 577 homes at the beginning of the month. Despite all this activity we have only closed 19 sales so far this month. Last year we had 54 sales in April. April could still out much better as at least 74 contracts have been hanging around since the end of the last coast.
We have lots of new inventory including a house that I just put on at 505 E. Putnam. It is a short walk to the high school. We also have lots of open houses so it’s a good time to be looking.
|$1 – 2M||6||48||30||18|
|$2 – 4M||8||46||36||10|
|1st Q Sales||Inventory||Inventory||Inv. Diff|