The Art of Winning a Real Estate Bidding War (Part 1): How Are You Going to Buy It?
I was thinking of all the things that I discuss with my buyer clients during the course of a property search and the procurement process, and that inspired me to write this series of blogs that I could refer them to. I enjoy the discussions and interaction with my clients, but I thought it would be nice if I documented a lot of the information that my clients need to know to have a complete understanding of the buying process and how the dynamics of the residential real estate market operate and function from an insider perspective. After all, I have been involved in hundreds of real estate transactions as a full-time real estate agent for the past 17 years and have been a real estate purchaser since 1987.
There are 3 components to the art of winning a real estate bidding war:
First, of course, is being able to produce the funds to purchase the property you want to buy.
Second is choosing a buyer’s agent who has the level of expertise necessary to find what you are looking for, write an intelligent, clean, acceptable offer and get you in position to get the offer delivered to the seller’s agent before another buyer manages to beat you out of the property.
Third is knowing how to increase your odds of making a good impression on the seller during the process of viewing the property and submitting an offer.
Let’s Talk About Money
In this first blog of my series on the subject, I will cover the money aspect.
The common methods of paying for a real estate purchase are:
- All cash
- Conventional mortgage financing with 20% buyer down payment
- VA mortgage loan with zero buyer down payment – eligibility requires that borrower is military active duty or veteran
- FHA mortgage loan with 3.5% buyer down payment
- USDA Rural mortgage loan with zero buyer down payment
Method 2: A conventional mortgage – if you qualify – can be obtained even if you don’t have the full 20% down payment that is required. One way the lenders do this is to get you a second loan to cover the down payment shortfall. Another way is to purchase mortgage insurance; however, your monthly payment will probably be lower if you get the second mortgage loan instead.
Methods of payment 3-5 have some restrictions. To qualify for VA and FHA loans, the property cannot be in disrepair, and if it is a condo, the condo project must be VA or FHA approved depending on which loan type of loan you are utilizing. USDA Rural mortgage financing requires that the property be in a designated rural area.
Know Where You Stand as a Buyer
Your lender will know the best type of loan that you can qualify for, however, it is always good to know where you stand in view of the options that competitive buyers might have. Sellers obviously prefer buyers who don’t need a loan and can pay cash, or who can qualify for a conventional mortgage with 20% down payment, especially if the buyer can agree to pay extra cash out of their pocket if the property appraisal comes in short of the contract price.
However, some sellers put equal or greater weight on other factors when choosing a buyer. For instance, a seller may give VA buyers priority because of their service to our country. Some sellers prefer to sell to young first-time buyers. You just never know how the seller’s decision process is going to play out. That is why I always tell my clients that, even if they aren’t in the strongest financial category, they will still be able to procure a property if they hang in there and follow my lead.
Choose a Competent Lender
When interviewing agents to represent you in a purchase, the first thing the agent is going to want to know is if you are financially qualified to purchase what you are looking for. Some buyers will contact a lender first to get pre-qualified or pre-approved for a mortgage loan before interviewing agents. That’s fine, though, the agent you choose to represent you in the purchase may advise you to use an alternative lender if your initial lender choice turns out to be less than competent.
So, if you think you are probably credit-worthy to get the necessary loan, I would say you might as well pick an agent first and then let them help you find the best lending source for you. The industry does not allow lenders to compensate agents, so you don’t have to worry about that. Your agent’s choice of lenders should be based on the lenders past history of closing loans efficiently, on time, and without causing undue stress on you, the buyer.
And believe me, it is typically the incompetent, blundering mortgage broker or bank/credit union loan officer who has the buyers pulling their hair out and suffering sleepless nights during the escrow period. I have seen it many times and I can assure you it does not have to be that way if you deal with the right people. I know which mortgage brokers to use in order to keep my clients stress-free, and I suggest you make sure the agent you choose has the experience to advise you wisely on this very important aspect of the process.
For Oahu real estate purchases, I find that it is best to use a mortgage broker with an office on Oahu if you want to satisfy a seller who expects to close the transaction within 45 days of the purchase contract acceptance date. A good mortgage broker can be more flexible in accommodating your credit standing and should be able to give you the same deal as your favorite local bank and close the loan more expediently.
I say this because the traditional banks and credit unions are notoriously slow to process mortgage loans. I have found that it seems to be the culture of the traditional banking industry to have a “get in line and we will get to you when we can” attitude. They also don’t seem to bother attempting to adhere to the purchase contract timelines, which can result in the buyer having to renegotiate those timelines with the seller. Of course, things are different if you are a bank’s VIP customer, and if that’s the case, you know who you are and you can probably just pay cash anyway.
Occasionally I still get a buyer client who insists on using a particular lender because “that’s the credit union or bank that I use for my banking and they already have all my information,” or “this other lender claims they can get me a better deal.” If I don’t have faith in their lender choice, I let my client know what I have seen happen to other buyers, and if they insist on going against my advice, I bite my tongue.
And then it gets so painful to see them suffer through the lender nightmare that typically occurs as their banker who “already had all their information” seems to be asking for it all over again and is no longer responsive as unanswered phone calls don’t get returned for 2 or 3 days.
And it’s funny how the “better deal” that was promised often seems to get lost in the mix, like your money in the hands of a quick-change artist. I swear the last client I saw go through a bad lender episode literally looked like he had been beaten up by the time it was over. Luckily, he did get his loan. Sometimes it has gotten so bad I have had to pull the client away from the incompetent lender and have them start over again with a proven lender in order to save the deal.
I hope this has been informative for you so far, and I invite you to read my subsequent blogs that will cover the other aspects of the art of winning a real estate bidding war. If you have any questions about purchasing real estate on Oahu, please contact me.