Since the pandemic, the national real estate markets have become increasingly competitive for home buyers. Fort Worth is no exception. The seller's market conditions are stoked by continuing low inventory and the high number of people at all price points seeking to buy.
Conditions are so competitive in some areas and price points that buyers are competing against dozens of potential offers. No one blinks an eye anymore when a home is under contract in days. March 2022 inventory for the Greater Fort Worth area stood at 0.7 months, with an average of 22 days on the market.
If you're planning on making an offer on a Fort Worth home, you can do a few things to make it more competitive.
Always be ready to act
In a fast-paced market, you already know you need to be ready to see the home at any time. Don't just be prepared to visit the house when your real estate agent calls; you should also be ready to extend an offer in case you like the home.
If financing, make sure you've chosen a lender and spoken with a loan officer about what you can afford and have all the facts about the loan process. Have proof of funds ready to go at all times. That way, as soon as you fall in love with the property, you'll be ready to move forward with delivering a purchase offer.
Begin with a strong bid
The median price for a Fort Worth home in March 2022 was $335,000. The National Association of Realtors (NAR) projects home prices will rise 5.1% in 2022.
It may not be advisable in a seller's market to low-ball the price or even be possible to come in under asking if you want your offer to be taken seriously. Sellers expect to receive very close to their list price. An underbid will be insulting. Make the right impression with a competitive number, so your purchase offer is seriously considered.
Making a higher bid than the asking price will not cost you much in the long term. The amount you put down and your monthly mortgage payment will only differ significantly if you offer a sum far above asking.
Keeping the offer in line with the property's worthwhile still exceeding the asking price can help you obtain the house of your choice.
Of course, you don't want to overextend and pay beyond the home value. Do look at the big picture, factoring in potential home repairs, closing costs, and extra costs on your end for moving. A professional real estate agent can give advice on a fair price for the home given the current market.
Remember, if you're bidding against others in a competitive market, it makes sense to go above and beyond the asking price–as long as you can prove you can make up the difference in cash if the offer amount exceeds the appraised property value. Banks won't lend more money than the property's appraisal value in most cases. You'll need to show that you can pay the difference between the appraisal price and your high price bid to give it weight.
It's crucial to remember that the highest price does not always mean you'll win the bid. Many other factors play into a seller's decision in a multiple offer scenario.
Find the seller's objective
Take a look at things from the seller's perspective. Have your real estate agent find out what the sellers are looking to achieve in their home sale. This information can help tailor your purchase offer to make it more attractive.
Most sellers expect top dollar from their home sale in a seller's market. A basic net proceeds calculator can help you better understand the seller's standpoint. The calculator might let you experiment with different elements in your offer to ensure that it offers the seller the greatest net amount at closing.
Make a cash offer
Consider a cash offer for the home. A cash offer appears stronger to a seller than one contingent on the buyer securing financing because it doesn't rely on any outside factors.
You'll need to provide 'proof of funds' — evidence that you have the financial means to buy the property. In most cases, you'll be expected to produce bank statements and a letter of authorization from your bank or financial institution.
If you don't have the total amount in cash, you still have some options to come up with a cash offer or increase the amount of cash at hand. Explore these options:
Cash-offer financing
In cash-offer financing, essentially, a company fronts the cash for the home purchase. The home is brought on behalf of the client by a third party. They hold the house while you finish the mortgage financing process with the lender of your choice. The company then sells the home to you.
The companies operating in this space charge a 1-3% fee for backing your cash offer. It is very similar to a hard money loan.
Existing assets
You may be able to use your existing assets as leverage. For example, you could use the equity in your current home or investment property as collateral for a loan to come up with a cash down payment.
Another option is to take a loan against a life insurance policy. Whole life, variable life, and universal life policies have a value that you can use to take out cash. The loan can be used for any purpose, like buying a home. The life insurance company typically has restrictions on the percentage of cash that can be taken out in a loan, such as 90% of the total value.
Like all loans, it will have interest due. There are other issues to navigate, such as the type of loan, impacts on dividend payments, and reduced death benefits. It's advisable to speak to your account or life insurance holder to fully understand the advantages and disadvantages.
Gift money
Cash can be gifted to you by a family member. Lenders allow for cash gift downpayment on various loan programs, from conventional to jumbo loans. You'll need a signed statement from the gift giver and proof of a standing relationship.
For the person receiving the money, there aren't additional taxes. If the donor wants to give more than $16,000 (or $32,000 if parents file taxes jointly), they can either pay taxes or claim the money as part of their $12.06 million lifetime exemption for gift taxes.
Furthermore, the present may not be an "earmarked loan." The gift-giver cannot make any requests regarding the return or payback of the gift money. So if the donor is expecting you to make monthly payments in exchange for the cash, it's not a gift.
Hard money loan
A hard money loan can be an alternative lending solution when you need money fast. This financing tool is used by real estate investors to help them close a real estate deal quickly. A hard money loan is a non-conforming, short-term loan from individuals or private companies rather than traditional lenders. The asset is used to back the loan's value rather than your credit standing or income stream.
Fast cash loans are less stringent to get, making them ideal if you need to make the purchase happen as soon as possible. This translates into more flexibility in setting criteria for credit scores and debt-to-income ratios they want their borrowers to meet.
In exchange for their convenience, hard money loans typically have higher interest rates, and lenders may demand larger down payments than normal. The repayment terms are typically shorter. You could use a hard money loan to purchase the home and then try to refinance with a conventional lender at a lower rate and longer repayment terms.
Get a decision-now mortgage approval
Decision-now mortgages help to speed up the closing procedure, and they may make nontraditional homebuyers more appealing bidders in a sale.
It's not quite the same as cash. Also known as an underwritten preapproval or upfront underwriting, the lender denotes the loan has already been funded and the rest of the purchase price has been accounted for. That means the buyer can remove financing contingencies from the purchase offer without worrying about losing the earnest money deposit because the mortgage is now secure.
Decision-now mortgages aren't offered by all lenders. It takes some shopping around to find this financing option.
Contingencies
If you're not able to make a cash offer, there are still ways you can make your home offer more competitive. One is to avoid contingencies or limit them as much as possible. For example, if you're selling another home to buy the one you're making an offer on, you could make your offer contingent only on the sale of your home, not on the financing.
Here are a few contingency options to play around with:
Buy As-Is
One way to make the offer more attractive is to avoid putting any repair contingencies in your offer. This means that you're willing to buy the home as-is without any repairs being made. This can be a key selling point for sellers, as they won't have to worry about making any repairs before closing.
You are still entitled to a home inspection, and it's a smart idea to get one so you know what you're buying. However, your contract will waive the right to request repairs based on the home inspection results.
Serious earnest money deposit
Another strategy is to increase your earnest money deposit. This is the money you put down to show the seller that you are serious about buying the property. The standard earnest money deposit is 1-3% of the purchase price, but increasing this amount can show the seller that you're even more committed to buying the home.
Waive the appraisal contingency
An appraisal contingency can also be waived, which is riskier if you're financing–unless you have enough cash to compensate for any potential gap between the offered price and the estimated value. An offer indicating your intention to provide money if the home does not appraise will undoubtedly distinguish you from the competition. Just make sure you're financially sound enough to take this chance.
Waiving the appraisal contingency is critical to consider in neighborhoods that are seeing a resurgence in property values or have attracted high buyer interest.
Fast close
A quick close means that you're willing to close on the property in less than the standard 30-45 days. This can be helpful for sellers who are looking to move quickly. A cash offer will help you offer a fast close option.
Pay the closing costs
Offer to pay some or all of the seller's closing costs. This can be helpful for sellers who may need the money to pay the closing costs on their next home purchase. It can also be an enticing offer because it's less money from the seller's pocket.
Offer extended occupancy
If you take out a mortgage to buy a property, your payment isn't due until 30 days after the closing date. Why not make the transaction more attractive by offering free "rent" for a month to help the seller with moving out? A seller may be incentivized to choose your offer with the option of staying longer in the property rent-free.
However, if you do decide to provide one month of accommodation, make sure you negotiate the specifics beforehand. Get this agreement in writing so that things are clear and precise. You don't want to find yourself with an unwelcome house guest for an extended time.
Don't ask for extras without paying for them
Do you want them to include that nice lawn furniture? Skip it. Your price may be very close to another offer that doesn't request items the seller owns. Requesting excluded goods might reduce your offer's strength.
If you want to seriously compete for and win the bid on the house, remain focused on achieving your goal: buying the house. If you want to keep something in the home, offer to purchase it outright.
What about escalation clauses?
You may have heard about special provisions that change the price based on outside variables, like other purchase offers. For example, a clause that says the buyer will pay a specific amount above any other offer.
Licensed real estate professionals in Texas are prohibited from writing escalation clauses into purchase offers. TREC Rule 537.11(b)(5) says license holders may not "draft language defining or affecting the rights, obligations, or remedies of the principals of a real estate transaction, including escalation, appraisal, or other contingency clauses."
Winning a multiple offer situation
Making a competitive offer on a Fort Worth home is essential to winning the negotiation on your ideal home. Learn more about multiple offer situations and how it impacts your home purchase. Using some or all of these tips can make your offer stand out and increase your chances of getting the sellers to sign your purchase agreement.
Another asset in making your offer more competitive is having the right real estate agent on your side. We use our market expertise to help strategize a competitive offer and negotiate on your behalf to help you win the home. Trust in Chicotsky Real Estate Group to have the local knowledge and experience to secure you the perfect Fort Worth home.
