Philadelphia

let’s talk: COMPETITIVE OFFERS IN A COMPETITIVE MARKET PT I

Good Afternoon!

Right now, PK and I are on the hunt for a home for us! We have purchased rental properties in the past but never a home for us to live in ourselves, so this whole process is new and exciting. Unfortunately, we picked a CRAZY time to do it. There is very little inventory, and anything that we like is under contract within 48 hours. This past weekend we put an offer on a home and did not get it. I want to explain why I think this happened and why there is nothing I would have done to change our offer.

So, as we do, let’s talk Real Estate, let’s talk COMPETITIVE OFFERS IN A COMPETITIVE MARKET…

Let me give you a breakdown of this deal.

House came on the market 8/29
We toured it 8/30
Offer submitted 8/31
Our offer: $11k OVER ASK, $60k escalation clause, 20% down, conventional loan, inspection contingency, appraisal contingency, on lot sewage inspection (septic tank), willing to close as soon as the bank was ready or as late as the current owner wanted. OH and my husband wrote a heart felt note about how his dad lived on the same street – so sweet.

We were willing to pay over ask and close whenever the seller wanted to but ultimately that was not enough to get this deal done.

I want to break down our offer, why it did not “win”, and why I would not change it.

First let’s talk about why we would pay over ask….

Here is why we were willing to pay over ask – COMPETITION and EMOTIONS. This market is incredibly competitive so we knew we had to be aggressive. Furthermore.
being able to live on this street was an emotional thing for PK, so we were okay with paying a little more for that sake. BUT, even with all of that in mind, we were still only willing to spend more, as long as the house appraised and had been inspected beforehand.

Let’s talk about the appraisal contingency…

As I mentioned above, we were willing to pay more than the seller was asking for, as long as the house appraised for that value. I thought the house was listed at a very competitive price, which was very smart of the listing agent. Pricing the house competitively, and slightly below what it may appraise for, allows you to draw in a larger pool of buyers ultimately driving in more offers. I believed, because of the way it was priced (to drive the most traffic),that they probably could have gotten more for the house than what they were asking for, which is why we offered more. BUT, despite being emotional, and really wanting this home, one thing we were not willing to do was buy a house that was “not worth” its purchase price. In our minds, in order for us to purchase this house, it HAD to appraise for what we were buying it for. We were not willing to put ourselves in a financial deficit ESPECIALLY when the market is UP. If the market was down, and we knew the house would only appreciate, or we planned on living in this home for the rest of our lives, well then maybe we could reconsider this, but to buy a house that under appraises when the market is up AND we have no clue where we will be 5-10 years from now… that is a NO for us. At least for now and the stage we are at in our lives.

I want to note that there are definitely circumstances in life where you don’t have the luxury of not buying a home just because it does not appraise. There are plenty of times where the buyer must make up the difference of the appraised value vs the purchase price in cash. And, to the buyers who CAN, MUST or WANT to do that – I am in no way belittling or condemning your decision to make that purchase. There are some circumstances where you just HAVE to buy a house RIGHT NOW, wether it is to move your family, sell your current home, pay off other debts, or just end up in the home of your dreams etc. In those instances, you may not have a choice but to try and make up that difference in cash, but for us, this was not the case.

Let’s talk about the inspection contingency…

Inspections can draw up a ton of re-negotiation if they go poorly. If you are buying new construction, planning to gut renovate the property, plan to pay cash for the home
OR if the seller had a pre-sale inspection before they listed the house, you may be okay waiving the inspection. BUT, in this case, this was an older home, with a pool, well water and a septic tank, and we would be relying on bank financing in order to close on the house. So for ALL of those reasons, there was no way we could waive the inspection. We elected to have an inspection.

Ultimately, the owner ended up choosing a lower offer that had looser contingencies around the inspection and appraisal. And to be totally truthful, a deal with looser contingencies is probably the safest for the seller, as long as the buyer is strong. It gives less opportunity for the deal to fall apart, and higher chances for it to close.

The ultimate takeaway here is…

If you have to move now or are looking for your forever home in this competitive market – talk to your realtor about how you can use contingencies to make your offer the most desirable.

BUT, if you are looking because you “want to move” vs needing to move, and are unsure if this your forever home – well then, wait it out. Keep making offers that make sense for you until one clicks. We are still very much on the hunt and hope to be out of our apartment when our lease ends in December but we understand that we are in a TOUGH market for buyers and in my personal opinion, making a risky purchase for your primary residence when you don’ have to – it is just not worth it.

That is all for today! I will keep you guys posted over the next couple of months. Let me know if any of you are currently house hunting or have purchased a home during these crazy times!
Happy Wednesday! & Stay Healthy!
Erin

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