7 Ways Buyers Can Win in a Strong Seller's Market

Being a buyer in a strong seller's market can be very frustrating, to say the least. Many homes get multiple offers, and even if you make an offer that is substantially over the seller's asking price, you may be outbid. I have worked with buyers who have submitted 30 bids - yes, thirty - on homes before finally being accepted. That is enough to make any buyer want to give up.

Though it is impossible to guarantee anyone that they will win the competition for the home of their dreams, we have identified seven things buyers and their agents can do to improve the odds.

1. Be Financially Prepared

Knowing exactly what you are prepared and able to spend on a home is crucial, so make sure that you know how much you can borrow - and how much you are comfortable borrowing - if you are financing, or how much you are willing and able to spend if you are buying cash.

If interest rates are rising, as they were at the time of writing this article, make sure you are approved for an interest rate that is higher than today's rate. This way you can help prevent your loan from approval being withdrawn or the loan amount from being reduced if interest rates go up before you can lock your rate. This is particularly important if you are buying new construction which quite often will have a closing date months in the future.

2. Pay Cash or "Like Cash"

Sellers love cash buyers and they should. When you are buying with a mortgage there are many things that can go wrong. If you are paying cash there is little risk that the transaction won't close once the inspection or due diligence period is over.

But, we can't all be cash buyers so what can you do to better compete with cash buyers? Find a creative lender who will let you spend their money and be "like a cash buyer". One loan product that can make your offer as good as a cash offer is the Knock GO (Guaranteed Offer) loan. The loan has a built-in guarantee against appraisal gaps and a guaranteed closing date. It truly is as competitive as cash.

3. Submit Your Highest and Best Offer First

In a strong seller's market trying to submit a lowball offer is not going to get you your home. Most sellers receive so many offers that they often don't even negotiate, they take the best of the offers that are already on the table. So, if you are willing to go to a certain dollar amount, go to that amount in your first offer. Chances are that you are not going to get a second chance.

4. Find Out What is Important to the Seller

This is where the value of a good buyer's agent really shows. Obviously, sellers want as much money for their homes as possible. Often that is not all they want, though.

Some sellers may want a quick closing, others would like to wait a few months before they close. There are many sellers in this market who would like a quick closing but also would like to stay in their home for a while after closing to allow themselves time to find their next home. Maybe they would appreciate help with their closing costs.

So, before you write your offer, your agent should call the listing agent to find out what that particular seller is looking for in an offer on their home.

5. Use the Escalation Clause

If you are anything like me you'll find it difficult to allow yourself to submit your absolute highest offer from the beginning. In that case, you should use an escalation clause.

An escalation clause is a clause in the contract that allows for the seller to increase your offer up to a predetermined maximum provided that he or she can prove that they have a better offer than yours.

Let's say that you offered $ 450,000 on a home with an escalation clause up to $ 500,000 in increments of $ 1,000, this is how the escalation clause would work:

1. If your offer is the highest received, it stays at $ 450,000.00
2. If the seller receives a bonafide offer for $ 460,000.00 from another legitimate buyer, your offer will automatically increase to $ 461,000.00
3. Your offer can never exceed $ 500,000.00 so if the seller receives an offer for $ 499,999.00, your offer will increase to $ 500,000.00

This is almost as good as submitting your absolute highest and best offer. Almost as good, because not all sellers will accept an escalation clause.

6. Avoid as Many Contingencies as You Can

You have to protect yourself, but the fewer contingencies you have in your contract, the easier it will be for the seller to trust that the transaction will close.

Maybe take a step back and ask yourself, how you would view the contract as the seller.

7. Be Prepared to Cover an Appraisal Gap

In a market with rapidly rising prices, it is very common that appraisals are lower than actual sales prices. This is natural because appraisals are mostly based on historic sales and it doesn't mean that the home you are buying is not worth what you are paying for it.

In that situation being willing and able to cover an appraisal gap with your own funds can be the difference between winning or losing the competition for your dream home. If you do not have the cash to cover the appraisal gap, using a mortgage product such as Knock GO (mentioned above) may be a good idea.  With Knock GO the lender covers appraisal gaps up to a certain percentage.