Question: The best time for me to purchase a home is over the next few months, but I’ve heard from friends that the spring is highly competitive. Do you have any tips for being more competitive in the spring market without overpaying?
Answer: In a couple of weeks I’ll publish a summary of real estate data for the first quarter of 2017 in Arlington, but I can tell you that this year is off to an explosive start and the “spring market” started early. Warmer weather brings more buyers to the market and more competition over our limited housing inventory. Here are some tips on how you can improve your chances submitting a winning offer without exposing yourself to unnecessary risk or overpaying:
Take Your Time, Do Your Homework
I always tell clients that a home has two values — market value and personal value. Personal value will drive how you structure your offer and what you’re willing to pay relative to market value. Hopefully you’ve spent time over the last couple of months sharpening your criteria and understanding how it fits within your budget. If you’ve put in the right prep work upfront, you’ll be able to recognize personal value quickly and make strong offers with confidence.
One way to make your offer stand out is by settling in three weeks instead of the more common 30-40 days. The settlement period is the time between the contract being signed (ratification) and the home purchase. It’s dictated by the time your lender needs to prepare your loan, so talk to your lender early on about ways to reduce your settlement period. Most sellers want to close on a property as soon as possible.
Most offers in Arlington include contingencies (protective terms for a buyer) for financing, appraisal and a home inspection. The shorter you can make each contingency, the more attractive your offer will look to a seller. Talk to your lender about how long they need for the financing and appraisal contingencies and don’t add unnecessary time to them. Home inspections are valuable steps in the buying process, but also carry significant risk to the seller.
There are a number of ways to improve the “normal” 7-10 home inspection contingency to make your offer more attractive such as reducing the length of the contingency to five days with a short negotiation period, using a Pass/Fail contingency by removing the right to negotiate, making the inspection for informational purposes by removing the contingency all together (do not make this decision without considerable discussion), or getting approval from the seller to conduct a pre-inspection before making your offer.
Before making your offer, find out if the seller has any preferred terms such as a post-settlement occupancy (aka rent-back), home purchase contingency, or timing of settlement (Virginia loans should close end of month).
Watch Days on Market
The number of days a property has been on the market will help you decide how to structure your offer. You should be prepared to make your strongest offer within the first week of a listing and adjust your terms with each week a property sits.
The spring market can be a great time for buyers who are prepared for the additional competition because you’ll see a significant increase in inventory, so that illusive two bedroom + den or half-acre yard with a deck is more likely to appear. If you’re not prepared to make a strong offer, the spring can be frustrating and defeating because you may watch your dream home(s) go to other buyers who have made smarter, but not necessarily higher, offers.