Hi friends,
Have you been trying to buy a home in the Hudson Valley and finding it difficult, especially as a first time homebuyer? You aren't alone. While I love posting success stories about my clients that I help buy a home, there's usually a long, strenuous process that has happened to get them there.
While market conditions are improving for buyers (interest rates are still historically low and home price increases are stabilizing), it's still very much a seller's market in the Hudson Valley, and that means there's quite a lot of competition to buy a house. As a homebuyer, you may run into issues where your offer isn't accepted on a house because someone else had a better offer. A good Realtor will help you price an offer for success, a great Realtor will structure price and terms for the strongest possible offer that you can comfortably make on any house. What kind of Realtor am I? Obviously the best, and most humble.
Let's break down the most important parts of an offer that a seller will look at when making a decision: Price, Down Payment, Appraisal, and Inspection.
Price
Often, people think that the highest price offer is 100% of the time the offer that sellers will go with. While it is the most important factor to consider, there are a handful of times that a seller will be advised not to accept the highest offer just because it's a high price. However, if you are in a multiple offer situation, you still very much want to aim to be the highest or one of the highest offers on the table. (If you're all cash, you have some wiggle room, but not as much as you would if there weren't other offers on the table).
I always tell my buyers about what is called an "escalation clause." What is that, you may ask? Well, it's a clause that you build into your offer that makes the price of your offer adjust based on other offers that have been submitted. Essentially, you tell a teller that you will beat any other offer on the table by X amount (usually a few thousand dollars). You, of course, have to set a base offer price and a maximum that you will not exceed, but this is a way to guarantee you are in a strong position right off the bat. Some sellers and Realtors are not a fan of this method, so always have your Realtor check before doing so.
When making an offer in a multiple offer scenario, keep in mind that the more offers there are on the table, the higher the price is going to be. In these scenarios, even if there's only one offer on the table, you'll usually want to go in at at least asking price.
Keep in mind that a listing agent cannot disclose the details of another offer to your Realtor. No matter how much you want to know what other people offered, you wouldn't want them knowing what your offer is either.
Down Payment
A higher down payment will automatically strengthen any offer on the table. Minimum down payment is usually around 5% and is the weaker end of an offer, but it's not impossible to get an offer accepted with that, I've done it many times.
If you have a weaker down payment, I always advise to try to make up that with a stronger price. If comparing two very similar offers in price, and one offer has 5% down, and the other as 20% down, the seller will probably go with the higher down payment. So, come in with a higher price to strengthen that offer and make it more desirable to a homeowner.
I always suggest if you can do at least 10% down that's great, 20% is ideal, anything above that will strengthen the offer further, and you can be a little bit more lenient on price because you are showing the sellers that you have solid financials to fall back on in case of an under-appraisal, which I'll get into now.
Appraisal
A high purchase price means nothing if a bank will not appraise it at the price you are trying to buy a home for. If you offer $500,000 on a house listed at $425,000, sure on paper that looks fine and dandy, but the likelihood that a house will appraise for $75,000 above the asking price is slim.
When you buy a house through financing, the bank will send an appraiser out to inspect the property and generate an appraisal, detailing the house, any other comparable houses that sold in the area, and they will issue a price at which they have calculated the house is worth. The bank you are using will not give you one penny over that number on the appraisal report. So, if a property under appraises, you'll usually have to renegotiate with the seller on how to cover that difference.
To strengthen an offer, you can state up front what you are willing to do if the house under appraises. Some people waive the appraisal contingency altogether and say that no matter what it appraises for, they will be paying that amount, and if they have to bring extra cash to closing, they will. That's a bit...much, and I don't typically advise that to my clients because you just don't know what will happen.
I often advise my clients to set a certain dollar amount that they are willing to cover an appraisal gap by, usually around $5,000-$15,000 depending on the price of the house. So, if you tell a seller you'll pay an extra $5,000 above the appraisal if it under appraises, and you are buying the house for $350,000, but it only appraises for $340,000, then the purchase price essentially becomes $345,000 and you have to bring an extra $5,000 in cash to closing.
Keep in mind that any money paid above the appraisal price is you paying more for what the house is worth. You may not see a return on that money, and you're just spending that to make yourself the one that the sellers go with. But if it's the right house for you, it's often worth it.
Inspection
Last is the inspection contingency. I will never advise my clients to fully waive the inspection contingency so that they don't do an inspection at all, unless they are an well seasoned investor. What you can do with the inspection contingency to strengthen your offer, though, is to say that the inspection is for informational purposes only, barring any major issues.
Renegotiating after an inspection is done is a part of the process that the seller dreads, they'll often have to fix something that is broken or issue a credit/adjustment to price which lowers their net that they thought they were getting. If you tell the sellers that you are doing your inspection for informational purposes only, it means that you're basically going to take the house as-is and you won't ask for anything to be addressed or any credits from the inspection. Exceptions to this that I always make are for any major structural or safety issues, those should 100% be addressed by the seller.
Working that into your offer is a great way to strengthen your offer, but should only be done on a case-by-case basis, not on every single house. Talk to your Realtor about the best way to proceed.
And there you have it, friends. Those are some ways that you can strengthen your offer in a multiple offer situation. There are more ways than this to strengthen your offer, but they will vary depending on the specific house, and your Realtor should be able to identify those and talk to you about it.
If you're thinking of getting into the market and buying or selling a home in the Hudson Valley, and you need a Realtor, please don't hesitate to give me a call/text. 914-494-0141
Thanks for listening,
Anthony Ruperto
Licensed Real Estate Salesperson / J Philip Real Estate
522 N State Road, Suite 100,
Briarcliff Manor, NY 10510