Today’s real estate market is challenging, to say the least. There are a historic amount of people changing their lifestyles, moving away from the large cities, and buying new homes. The nation is seeing this change and the Big Island is no different.
If you are one of those people changing their home situation and are looking to buy, it’s vital to realize you are in a seller’s market. A seller’s market is when there is a shortage of homes for sale, resulting in the seller’s pricing power.
With so many buyers looking at the same home you are, having a strong offer is essential. Here are a couple of tips to help you succeed in your home buying process.
1. Get a Pre-Approval Letter
The first step in purchasing a home starts typically with talking with a knowledgeable mortgage lender. That lender will pull your credit and get some necessary information from you. Once approved, they will provide a pre-qualification letter.
It’s essential to go beyond this step and provide your W-2s, paystubs, and past taxes. By giving income verification, you provide the lenders with a realistic view of what you afford and your debt to income ratio. A pre-approval letter shows the seller you are serious about buying a home and went the extra steps.
2. Put Down a Large Cash Initial Deposit
As they say, cash is king or queen! There is over 35% of buyers purchasing a home with cash. Competing against a cash buyer can be challenging. One way to compete with a cash buyer is to have a substantial cash deposit.
Before COVID-19, I always had my buyers put down a large cash deposit due within three days of an accepted offer. I also have them put down an additional deposit after your due-diligence period (the home inspection period). If the home is over $500,000, I recommend an initial deposit of $10,00 and again after the J-1 Home inspection period. In today’s competitive market, the more cash deposit, the better. Remember, cash is king!
3. Limit Contingences
During escrow, there are many points where a buyer has the right to cancel a contract. These are called contingencies. A seller has to pay out for many of these contingencies.
Remember, a seller pays for a survey, termite inspection, professional cleaning, HOA documents, 60% of escrow and closing fees, and the buyer’s and seller’s commissions. That’s a lot of out-of-pocket expenses a seller pays.
For example, if you can limit even one contingency, for example, a termite inspection that costs the seller approximately $250, this helps make your offer stronger. I wouldn’t say I like removing contingencies as it’s essential having a termite inspection. Yet, what about paying for it yourself during escrow? Time to think creatively!
4. Highest Offer First, Be Ready to Bid
With today’s real estate market being so competitive, we do not see many counteroffers. We are witnessing bidding wars. I was working with a client interested in a home for sale for $550,000 in Waimea. The seller received 11 offers in 5 days. That’s an incredible amount of competition. Now is not the time to put a low offer. Consider offering the asking price with an escalation clause.
An escalation clause can help your offer stand out from the crowd. If there are multiple offers on a home, this clause allows you to increase your suggested purchase price to avoid getting outbid. The escalation clause indicates to the seller you are serious about buying a home and want an edge over other potential buyers.
5. Choose Your Real Estate Agent Wisely
The real estate market is moving at an incredible amount of speed. Having an agent who has dealt with multiple offers and understands today’s market is critical. It’s also vital that they still have the time to communicate with you and the time to be your real estate advisor. You want your agent to be ready to jump when a new home comes on the market.
I look forward to talking and being your Big Island advisor and real estate agent. Have you tried purchasing a home and been outbid? I’d love to hear about your experience.