Here is the deal in Metro Atlanta right now, we are seeing the lowest inventory we have seen in a long time. Low inventory means there is not enough good property on the market for the number of buyers that are looking for a home. Buyers must be more competitive when making an offer. Low inventory markets produce:
- Less good quality homes on the market
- Multiple offers
- Sale prices at or above list price
- Better terms (less closing costs paid by seller, shorter close time, etc.)
- Competing with cash offer
- Stress and frustration for the buyer
Don't worry there are ways to win the war, so to speak, when it comes to low inventory. Here are two ways that can help you get the home you want.
- Correctly structuring your offer
- Solid financing (qualification) letter
Structure a Strong Offer
The biggest way to getting the property you want is how you structure your offer and communicate that to the listing agent or seller. There are key items in the Purchase and Sale Agreement that can be structured to make your offer much stronger.
- Purchase Price - If there are multiple offers - offer above asking price. Others will. Look at it from a numbers game. If the purchase price is $200,000 - a monthly principle and interest payment at 4.25% interest will be about $983.00. If you raise your offer to $207,000, your payment would be $1018.00. Only $25 more. If you get the house you really want, it is worth $25 more a month?
- Seller Paid Closing Costs - There are two ways to handle closing costs. Reduce the amount of or do not ask for any closing costs to paid by the seller. If you went above asking price and really need some help on the closing costs, then ask for some. The bottom line is that the seller is looking at the bottom line, what he/she will net.
- Closing date - The typical closing time is about 30-40 days. Try closing sooner. If you can close in the first part of the month, the seller will not have to make a mortgage payment. Always check with your lender to see if that is possible.
- Earnest Money - earnest money is a deposit to show that the buyer is serious about buying a home. It is held in a real estate brokerage escrow account to be used for the buyer at closing. Most lower price properties, the earnest money is around $1000. Higher price properties, around one percent of the purchase price. To make you a more committed buyer, in the seller’s eyes, go as high as you are comfortable with. You will have to bring a down payment so why not have a higher earnest money.
- Due diligence period - The due diligence period is when you have a certain amount of days, usually 7-10 days, to complete the home inspection, negotiate repairs, read through the homeowner association documents, etc. To make your offer stronger, you could lower the number of days for the due diligence period. If you decide to do this make sure that you have a qualified home inspector ready to get the inspection done immediately, so that you have time to negotiate repairs.
- Financing and Appraisal Contingency - This is the time that you negotiate (usually 21-28 days) to get the financing and appraisal completed. You could lower the amount of days to get the financing done. Lowering the amount of days will reassure the buyer that you will qualify for a mortgage. Check with your lender to make sure they can approve the loan in a shorter period.
- Don't ask for anything - In the Georgia Purchase and Sale Agreement, there is a section for stipulations. The stipulation section is where a buyer would ask for things like a home warranty, termite letter, etc. Don't ask for anything - make it a clean contract.
Getting qualified for a loan - Get a Loan Commitment
Second thing, which is the most important and will give you the ability to be more flexible writing an offer, in a low inventory market, is getting a loan commitment. What is a loan commitment? Great question. Before we talk about that, let’s look at the different types of qualifications for a loan. There are three types.
- Pre-qualification - this is the weakest of the loan qualifications. This is where the lender will look at your credit report and ask you questions about your debts and income.
- Pre-approval - this is a little stronger. The lender will look at credit, debts, income, tax returns, etc. Getting pre-approved means that you are closer to an approval but there is still work left to do.
- Loan commitment or full approval - This is where the lender will evaluate your entire financial history and will then issue a full approval/loan commitment. Once you get a loan commitment, you are guaranteed a loan. All you would need do is find a house, get and inspection and appraisal, and close on the home. Having a loan commitment allows you to have the flexibility to write a stronger contract with terms we discussed above. Having a loan commitment is the best way to go, in any market, not just one with low inventory.
A couple of things to remember, make sure you talk with your lender about getting a loan commitment and get it done before you even look a house. Two, make sure you have a Realtor than understands how to structure a contract. A Realtor that understands this, will be able to put you in the best position to get the home you want.