Borrowing money

Four ways homebuyers can gain a market advantage from a ruthless seller

Faced with higher mortgage rates and a market where too many people are vying for too few homes for sale, buyers tired of being outbid are looking for strategies to stand out.

New home sales fell 16.6% in April from March to a seasonally adjusted annual rate of 591,000, the lowest level since April 2020, the Commerce Department said Tuesday, as rising mortgage interest rates put pressure on buyers’ portfolios.

On average, a home sold in April had nearly six offers, up from about five a year ago, according to data from the National Association of Realtors. Of the homes sold, 61% had an offer price higher than the list price compared to 53% a year ago.

While the Federal Reserve’s rate hikes could mean the housing boom is on hold, for now many buyers continue to find themselves facing investors and cash offers. Short of paying cash or going overboard in a bidding war, here are four strategies to consider.

Offer a larger down payment, down payment or escalation clause

One way buyers can make their deals stand out is to offer a larger down payment, or simply a larger earnest money deposit, said Kate Wood, home and mortgage specialist at NerdWallet. The deposit is a deposit of 1% to 2% that the buyer makes to show the seller that he is serious about his offer.

Being prepared to pay a larger deposit than the norm shows the seller you seriously want the property, Ms Wood said. “Even 3% might attract attention,” she said.

Consider increasing your down payment to differentiate yourself from a seller who has received multiple offers, said Alex Lacter, senior communications specialist at Zillow. A larger down payment improves the chances of a mortgage being approved and reduces concerns about the size of the loan relative to the appraised value.

Amy Schinco, a real estate agent in Omaha, Neb., said buyers often win by using an escalation clause, which means they’re willing to bid up to a certain maximum purchase price and beat the next best bid of a specified amount.

For example, a recent buyer she represented offered a purchase price of $360,000, then offered an escalation endorsement stating that he would go for a maximum purchase price of $400,000, beating the next best bid of $2,000. They got the house.

Help the seller

In this market, sellers may be concerned about the time it takes to find another home. To help ease that anxiety, buyers can increase their chances of winning the offer by offering a flexible closing date and rent, said Lawrence Yun, chief economist at the National Association of Realtors.

For example, offer to close in 60 days and give the seller an additional two months to rent the house until a new residence is found.

Joy Jiang, 25, recently purchased from a seller in Burke, Va., who needed to stay in her home until August 15. Unlike other buyers with children needing to enroll in school who offered more, Ms. Jiang could agree to their Aug. 15 move-in date and offered to re-let the house to sellers until then. She believes her $785,000 bid was chosen over several higher bids because of this flexibility, she said.

Use your real estate agent’s connections

Find an agent who can help you identify off-market homes for sale or “pocket listings” that aren’t yet released, said Jane Yoo, a financial planner in Oakland, Calif.

For example, his clients who recently went shopping in Austin, Texas primarily targeted the classifieds with the help of their real estate agent who has a strong local network to identify off-market homes.

Ms. Yoo’s clients also worked with a local lender. The realtor recommended the lender because she trusts the loan officer to respond quickly, including on weekends, Ms. Yoo said. This dual strategy helped them land a home, she said.

Most sellers are worried about the financial strength of their potential buyers, said Mark Barnes, a realtor in Charleston, SC

To help differentiate his clients, Mr. Barnes asked his buyer’s mortgage company contact to proactively call the seller’s agent, so they could have a discussion about the strength of the lender’s finances. ‘Buyer.

“It seems like a small step, but I’ve seen it help buyers get the house,” he said.

Borrow against your investments to compete with cash buyers

An all-cash offer might be the most effective strategy in this hot market, but it’s not an option for many homebuyers. Those with brokerage accounts with large balances can use a margin loan to borrow against those assets without realizing capital gains, said Jim Miller, a financial planner in Chapel Hill, North Carolina.

The strategy is not for everyone and can be risky, especially as the stock market declines and volatility increases.

Typically, you can take out a margin loan of up to 50% of the value of your brokerage account. Miller advises clients to borrow far less than their maximum allowable amount so they have enough room in their budget in the event of a margin call. This is triggered by a decline in asset prices.

A margin loan allows buyers to compete with cash offers and get quick, short-term financing. They often take out a mortgage after the deal closes to immediately pay off the margin loan, Miller said.

With some interest rates on margin loans around 2% to 3%, versus a 30-year mortgage rate of over 5%, these loans are attractive, he said.

Eric Walters, a financial planner in Greenwood Village, Colorado, said several of his clients used equity lines of credit as temporary bridging loans to win the deal. This loan is similar to a margin loan, but cannot be used to purchase securities and generally requires more paperwork.

This story was published from a news agency feed with no text edits

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