So how does a buyer get an advantage in a competitive bidding situation in a tight market? The short answer is to be better prepared than your competition and move faster than they do.
Build a Team Early
Everyone knows to get a good Realtor when they buy a house, but you will need other professionals too. If you are going to need financing, talk to a mortgage broker or banker early, even before you start looking. Meet with them and build a relationship. Very few financings are pro forma today and you’ll want a banker who will go to bat for you to move the process along.
Most buyers don’t think about a real estate attorney until after their offer has been accepted. Be prepared and find your attorney early. Let him or her know your level of experience and that you’ll probably need a quick turn around on the contract rider.
Building inspectors can also be a big help. Once again, speed can be crucial. In a competitive bidding situation, you may only have a day or two to inspect the property. The only thing worse than coming in second in a bidding war is winning war only to get a house with problems.
The top capital gains tax has increased and there is an additional 3.8% Medicare tax on gains. The rules are complex, but if you have a significant gain in your present house, you may face a bigger tax bite than you thought. If you are selling your own house and you need the funds from that house to close, consult a tax attorney or accountant now to see just how much the taxman taketh and ways to minimize that take.
First relax you’ve got a team of advisors if things get difficult. You’re better prepared than most of your competition.
Second, have your mortgage broker or banker pull your credit and check for any problems. Get not only pre-qualified, but pre-approved and not just pre-approved, but under written pre-approved. What this means is that the bank has done everything necessary to approve your loan for a house except the appraisal on the house. A pre-approval letter and shorter mortgage contingency goes a long way when bidding against someone who only has a pre-qual letter. Also, the beginning of the process is the time to fix your credit score rather than when your entire loan hangs on getting your credit score a few points higher.
If there is some way you can do an all cash purchase great. An all cash offer in a competitive bid situation can move you to the top of the list and often reduce your purchase price by $10,000 to $20,000 for deals under $1,000,000 and by as much as $50,000 or more for deals under $2,000,000. Consult with your team before you do this.
You may want to make an all cash offer even if you are going to finance the house later, to free up cash after the purchase. Post-purchase refinancing can be tricky and may affect your taxes, so check with your accountant or tax attorney before you pursue this path. And, the time to do that is before you saddle up and go looking for your dream house.
Also, a high price is good, but if you want to be in your new house in two weeks and the sellers can’t find a new place and arrange a move for two months, your higher, all cash offer, may be DOA. You want to match your other terms to your seller’s needs.
Third, be available. If you are a couple and one of you can’t always take phone calls, what about email or texts? Whenever possible whoever is most available should be able to make decisions for both. Discuss various options in advance so you are both comfortable with this. Also putting in a bid and going on vacation or a trip is a not optimal. Often, an hour or two or even minutes can make the difference in whether you get the house. Making decisions and responding in minutes gives you a big advantage over the competition that can’t get back to the seller until tomorrow.
Fourth, be flexible and reasonable. Don’t let a minor deal point or an item worth a few hundred dollars become an ego issue. Work with your team to come up with other options, particularly when the other side is being unreasonable. Don’t yell and scream. The seller has lived in your house-to-be for years and knows all your new neighbors. You want to arrive in their good graces.
Fifth, be human. Let the seller know why you like their place and what it will mean to you and your family to live there. Also try to connect with each person you deal with; don’t become just another case number.
Lastly, have fun. How often will you get to do this? With a good team you’ve got people to talk with. Even if you lose out the first time around you will have gained valuable experience. You will get a house and often a better house at a better price.
A call for a welcoming Greenwich
I’ve been dealing with a lot of Covid refugees who are going through the ups and downs of buying a house in a tight market. Many of them are scared of moving to Greenwich. Often, they have lived in New York City for decades and really don’t know what to expect. What will it be like for their kids? Will they be able to go to a school here? Will people from Greenwich look down on them? Where do they shop for those specialty items they love? Will there be dangerous wildlife in their backyard? We are all in this together and if you see someone that looks a little unsure of themselves you might ask if you can help. If you get a new neighbor introduce yourself or just drop a welcoming note in their mailbox.
Also, it would be great if each neighborhood association would host a welcome function for our new arrivals. It’s a great way to get some new members and tell people about your community. Associations could do a zoom function or small, social distancing, get-togethers outdoors. Just as we are seeing with business practices, this year is going change Greenwich and accelerate trends already taking place. Let’s make it as pleasant as possible for everyone and having a little fun along the way would be nice too.