It's no secret that the real estate market is anything but typical for a recession. The market is incredibly competitive, with many properties seeing multiple-offer situations and going under contract within 24 to 48 hours. In today's market, it's crucial that buyers have all of their proverbial ducks in a row; one small item can be the difference between a competitive offer and an offer at the bottom of the heap.
In the last four months the real estate market nationally has seen growth in a manner that many did not forecast. I don't think anyone was of the mindset that the market would behave in the manner that we are currently experiencing, and Central Oregon is no exception. In fact, our local market has become so competitive that in many cases properties are in multiple-offer scenarios with escalation clauses.
How does one approach purchasing a property in the current market conditions? The answer is simple: by putting one's best foot forward right out of the gate. First and foremost, this is not the time for a "do-it-yourself" situation. Working with a real estate professional is the most important thing a buyer can do in this market. Real estate brokers are trained professionals who deal daily with situations like multiple offers and how to write a clean offer in order to compete with others. One misstep or misunderstanding on paperwork or inspection and financing contingencies can push an offer off the table.
Current market conditions do not lend themselves to time being on a buyer's side. For example, just last week, I called to set up a showing for a property on the west side of Bend. It had been on the market for all of 24 hours and had had 32 showings with six offers. The same went for nearly every property my client was considering. It's important the buyers and their brokers are able to "act fast." This also means being prepared to make a decision on the spot.
Once someone's decided to make an offer, it's essential that it's the very best offer right up front. If using financing, make sure that the prequalification letter is attached with the offer. Sellers have the luxury right now to be picky—and one of those things involves knowing that a buyer is ready to go and can make the formal loan application immediately upon acceptance of an offer. Eliminating the question of buyer qualification is one less concern for a seller.
Another thing to consider when making an offer: what the timing for a seller is. Does the seller want a quick close? Or perhaps they need a slightly longer escrow, to make moving arrangements or find a replacement property. The seller is driving the bus when it comes to timing, so it's key to work within their construct.
Earnest money deposits and down payments are another big thing. The earnest money deposit sends a signal to a seller that the buyer has cash in hand and is ready to perform. The larger the earnest money deposit, the stronger the signal to the seller that the buyer is willing and ready to go. Standard earnest money is typically about 1% of the purchase price. In a competitive market, it's wise to double or even triple that. In addition, when using financing, a large down payment signals to a seller that the buyer is, again, capable of performing, and the likelihood of qualification issues arising is slim.
Buyers in a multiple-offer situation also need to consider offering above the list price. Adding an escalation clause is one method to consider, which essentially says, "I will pay X amount for this property, but if another offer comes in that is higher than mine, I will increase my purchase price to Y." These can be a bit tricky, so it's best to have a clear discussion with a real estate professional about the most effective way to use an escalation clause.
It's imperative that a buyer have clear communication with their real estate professional about the current market and have all of the preparations completed prior to stepping in. It stings to lose out on one's dream home because the loan prequalification process had not been started or because they weren't prepared to meet the seller's needs/desires. The best and only way to compete is to bring one's best right from the start.