Top 4 Ways to Compete With Other Boston Area Home Buyers in 2024
There are many tools to consider when making an offer and winning on a home that many others are also bidding for. Each tool, of course, comes with risks, pros, and cons and may work differently for each buyer. Here is a top list of tools our buyers have been successful with:
1) Not all cash is created equal!
With all the cash that's been added to our economy in the last few years, the number of home buyers or investors with cash has grown. In fact, 1 out of 4 (and growing) offers in the Greater Boston area are cash offers. So, how do you compete with this if you don’t have an all-cash offer? There are 2 ways:
Don’t include a financing contingency:
Pro: This is nearly as good as cash because the seller has none of your financing risk on the table to have to worry about. However, you would have to be 100% confident you could get a mortgage if you needed it to make the purchase.
Con: You would be taking on lots of risk here. If you do need financing or a mortgage to buy your home but, for some reason, you cannot get one by the time of your closing due to a loss of your job, the lender not being able to meet a deadline, or a lender not able to fully underwrite and lend to you, etc., the deposits you’ve put up would be at full risk, and the seller could keep them.
Get a pre-commitment from a lender or bank:
Pro: Many lenders offer to underwrite you fully upfront. If approved, this removes the risk of them not lending to you when you decide on a home to purchase. This way, you do not need to include a stipulation that you still need to get financing because you already have it in hand. This is much stronger than a pre-approval and far less risky than the option above while still giving you the confidence to waive your financing contingency.
Con: If you put the time and effort into getting a pre-commitment with a lender, you will only have it with that particular lender. So if your desire is to shop around for rates once you have an offer accepted, you might lose the original value of getting the pre-commitment. While you are not committed to that lender, that particular lender is the only one who would have completed all the underwriting.
2) A clean offer means little to no terms
All sellers will ask for the highest price and a ‘clean offer’. Well, what does a clean offer mean? A clean offer means including little to no terms, also known as contingencies, in your offer. This provides the seller with the least risk and most confidence knowing you will ultimately buy their home.
This ties in well with the topic #1 above. Here are the top 3 contingencies most buyers want to include, but sellers would appreciate not seeing:
Financing contingency: This gives you time to get a confirmed mortgage. If, for some reason, your chosen lender cannot approve you for a mortgage, you could reverse the whole purchase, and the seller would have lost out on nearly a month of time in the market.
Appraisal contingency: If you need financing, but the lender appraises the home for less than the agreed purchase price you have with the seller, you would have the opportunity to renegotiate the accepted price. Buyers try to include this when they feel the price they have offered may be above market value and other recent similar sales in the neighborhood.
Home inspection contingency: This gives you time to inspect the home for potential structural issues, pests, or systems which may not be functioning appropriately. If you find something that, in your opinion, should be addressed now or eventually or may change the value of the home you just got an accepted offer, you would have the option to renegotiate with the seller.
The cleaner the offer means less of the above included. To the extent you can mitigate each risk on your own, you may feel comfortable not including them in your offer, and it will improve your chances of winning vs. other buyers.
3) An escalation clause automatically increases your price vs. others
A competitive home market means multiple offers, and prices may increase well over the asking price. An escalation clause can help you compete against other buyers on price. In this clause, you can include a max price you are willing to go up to triggered by competing prices other buyers submit. You can also set the increments your price can increase by. If the seller uses your escalation clause to accept your offer, they are required to show you the competing offers they have in hand to support the escalation.
Pro: Using this allows you to take advantage of a maximum price you might have in mind, but without blowing past other buyers. For example, if your base offer price is $500k and your escalation clause shows a maximum price of $525k going up by increments of $2k and you win at $518k, the next best offer in hand would have been $516k. It gives you some comfort in knowing that your price was not far above the rest of the offers but was still the best.
Con: You are effectively showing the seller your full hand of cards. This should only be used when you know that multiple offers are in hand.
4) A love letter to the seller
Whether you like writing a love letter or not or if you decide to use one as a template for each offer, you may eventually come by a seller who appreciates it. This letter is usually 1-2 short paragraphs and speaks to what you appreciate about the home, the neighborhood, and your strength as a buyer to ultimately purchase it. You want to pull on the emotional heartstrings of the seller.
Pro: This can help you stand out vs. other buyers.
Con: You have to write it 🙂. This doesn’t work as much with new construction sellers or builders since they are not emotionally attached to the property nor have they lived there.
The above are 4 strong ways to approach a seller in an offer and help you stand out against other buyers. Each one has varying risks, so it's important to assess how much risk you are OK with. At the end of the day, it’s risk to you or the seller, and it depends on how much you are OK with and how much you desire the home you are pursuing. We’ve seen each be used and with a successful outcome. Many also use these tools together in one offer to be that much more competitive.