Win the bidding war without overpaying

Casey Fleming
You may have to compete to buy the home of your dreams
It’s a seller’s market in Silicon Valley

5 Keys to Making a Successful Offer

Buying a home in Silicon Valley right now is not easy.  Listings are scarce and buyers are plentiful.  Most homes are selling very quickly with multiple offers.  Winning the bidding war can be hell…unless you know the keys to the most attractive offer.  Here they are:

Be Qualified

This may seem silly to include, but you should be qualified to buy the home you want.  This is not the same as getting pre-qualified (see below.)  You need to be able to afford to buy the home and to keep the home.  To ensure you are qualified, consult a competent mortgage professional long before you actually buy.  However strong a buyer you are today, you can probably be stronger, and thus more attractive to a seller.

For instance, credit is critically important when you are buying a home.  You can get qualified with a score as low as 620 (or possibly lower) but it isn’t likely your offer will be accepted, even if it’s the highest offer.  With higher scores you can qualify for conventional financing and you’ll look much more attractive.  Super high scores will get you a better price on the loan, allow you to qualify for more, and make you a very attractive buyer.

You might have issues with too much debt or too little cash on hand, too.  A good mortgage professional will evaluate your situation, help you establish a baseline and help you decide where to focus your efforts to improve qualification.  I met with one couple last year who had a little too much debt and consequently slightly too low a credit score, and not quite enough cash in the bank.  We worked up a plan, they followed it to a “T”, and they’re closing this week on their new home.  It took nine months, but they were able to buy a much nicer home than they otherwise would have.

Meet with a mortgage professional for a full evaluation, build a plan to address whatever is your weakest area, and follow the plan.

Get Prequalified

You need to be pre-qualified before you make an offer
Get pre-qualified or you’ll just be chasing homes

Once you’re ready to shop for a home you must be pre-qualified for a mortgage.  This means that you have applied for a loan, provided all of the appropriate documentation to support the application, and have been underwritten and approved.  The lender is committed to making the loan

Your real estate agent will want the prequalification to be in writing, and often written to specifically name the property on which you are making an offer.  Your lender should be willing and able to do this for you.

Use a Qualified Mortgage Lender

Speaking of lenders, sellers – who are being coached by real estate agents – are typically more “friendly” to pre-qualifications written by lenders they trust.  This might be a bank, but don’t overlook brokers.  If a bank doesn’t like the property or if something changes in your circumstances while you’re in escrow (things happen) a bank will turn the loan down, whereas a broker can still shop the loan and in many cases close it.

The key is that your mortgage advisor should be experienced and credible, and it helps a lot if they are well known in the real estate community.  Your real estate agent should include your mortgage advisor’s contact phone number and bio with the pre-qual letter, or a link to their web site, blog or LinkedIn page.

I worked with a young couple last year where they were not the highest offer.  In fact, they paid less than the appraised value.  They were first-time homebuyers buying in a mid-range price and had only 10% down.  But they had excellent credit, good reserves, steady jobs and decent income.  The listing agent called me to qualify me – he asked how long I had been in the business, how long had my broker been around, how pre-qualified my clients really were, etc.  My clients won the deal, and their agent told them that the phone call was what did it.  The listing agent did a very good job – he was hunting for the most solid deal, not the highest price, and he found it.  And my clients are SUPER happy.

Be sure your mortgage advisor is working for a credible, ethical company, and that he or she is a credible, experienced agent.  It could make all the difference.

Be the First or Last Offer

Unless otherwise instructed by the seller, a real estate agent will typically present multiple offers in the order in which they were received.  If you are one of the first to view the home, jump in with a good offer as soon as possible.  Sellers want the best deal for themselves, but most folks have an innate sense of fairness.  All things being equal, they are likely to accept the earlier offer.

If you can’t be first, be last.  Although the listing agent should not tell selling agents what current pending offers are, agents have a way of extracting information that could be helpful.  Plus, when the sellers are reviewing offers, your offer will be the last one they hear.  It could be all the advantage they need.

Use an Experienced, Well-Respected Agent

There are a number of reasons to use a highly experienced agent in a strong seller’s market.

An experienced agent knows how to present an offer in a compelling way.  Just as the listing agent’s job is to sell the house by highlighting positive features, your agent’s job is to sell you.  They should point out how qualified you are as buyers, what wonderful folks you are, how their home would be perfect for your family, how much you would enjoy the home and how well you would care for it.

Numbers are numbers, but homes are an emotional asset.  If the seller has raised a family in their home, they are likely to be inclined to sell their home to a young family that will carry on the tradition.  If a seller has a woodworking hobby and has built a great workshop in his garage, he may be inclined to sell to a woodworker.

Your agent should take note of things in the house during the inspection and make sure in the offer that the seller knows there is a strong connection between seller and buyer.  “…and Mr. Jones is particularly looking forward to creating beautiful pieces of custom furniture in the workshop space that Mr. Smith has built.”

An experienced agent will be able to craft and present an offer in a way that is compelling and attractive to the sellers, whether the offer is the highest priced or not.

There is one other factor that is not often discussed.  The real estate agent community is a relatively small one.  Agents work with other agents on deals all the time.  Some experiences are good, and some are not.  Any good agent will tell you that they love it when another experienced, competent, ethical agent is on the other side of the transaction.  They have to work together and count on each other to close the transaction, and the quality of the work each does affects the other.

If your agent is new or unknown, or worse is known but considered lazy, incompetent or just too busy to work on transactions, listing agents are less likely to want their seller to take your offer.  You might find this uncomfortable, but consider this: the agent’s job is to get the best feasible deal for their client.

Summary

In summary, if you want to be successful buyer in a seller’s market, keep these things in mind:

  • Get your “house” in order: be qualified
  • Get pre-qualified
  • Work with a respected mortgage advisor
  • Be the first or last offer
  • Work with a respected real estate agent.

    You've Made It! Congratulations!
    Congratulations! You’ve won the bidding war!

And good luck!

My name is Casey Fleming, and I help folks finance homes in California.  I am based in Silicon Valley, and can be reached at:

(408) 348-3442 / loanguide@outlook.com / www.loanguide.com

NMLS: 344375

DRE: 00889527