The past few years have been a bit unkind to buyers in certain ways; the market has contracted and slowed (in Santa Fe) but despite this, supply is scarce, and prices have continued to climb. If you find yourself in the market here, there are definite steps you can take to make it easier on yourself by the time you write a contract.
Offer Cash If You Can Do It
I’m embarrassed to have written something so elementary, but it may merit some explanation. Offers in which the buyer has to submit a financing contingency are inherently weaker for a couple of reasons: 1) Unless a buyer has actually gone through the loan application itself and has been offered a loan on the property, the buyer comes to the table with loan pre-approval, which is really only bank speak for “We kinda like the idea of lending you money.” But pre-approvals are never a guarantee of an offer of a loan. And sellers know this. Moreover, in part because of the great financial crisis and some of the reforms that were enacted afterward, loan offers take much longer now than they did before 2010. Some sellers may need to close quickly, and waiting on loan approval can preclude that. Many buyers come to the table armed with cash to make sure that their offer is the one that’s accepted.
Be Prepared to Show Proof of Funds
A strong offer is a cash offer, yes. But you gotta prove it. For me, it’s not enough to receive a letter from a family-owned CPA firm in New Braunfels stating, “My client has sufficient funds to make a purchase of up to a million.” I want to see numbers. I want to see a statement. This is important if you’re going to submit a cash offer and expect it to be seen as a strong offer.
Eliminate Home-Sale Contingencies
Smart sellers aren’t fans of contingencies. If you need to sell your current home to obtain the proceeds to fund an offer, your seller will be interested in how your contingency is structured. With your offer submission, try to ensure that your home is marketable and indeed has already been placed on the market. Some of my sellers recently received an offer from a buyer from out of state who had a financing contingency and a home-sale contingency, and the home had not yet been placed on the market. An offer like that, with two contingencies, can indicate to the sellers that the buyer is not serious. Indeed, it was not a serious offer and though I was obligated to present it to my clients, I recommended that they not counter. If you must have a home-sale contingency, make sure you have a plan for getting your home on the market, make sure it’s priced reasonably, and make sure your agent’s marketing of your home is effective.
Be Prepared to Act Quickly
In Santa Fe, homes that are in good condition and marketable will receive offers. Often times, those offers will come within hours or a day of their having been listed. Enter with a bang. You may not want to be the first to make an offer, but you do want to be the strongest. So be prepared with the above and conduct your due diligence on the home ahead of time. Stay a while at the first showing. Ask hard questions. Put your best foot forward from the outset. In short, don’t forget that real estate markets are still competitive and that you too must be competitive.
Be Flexible on Earnest Money
Customary earnest money percentages vary by market. A homeowner in Houston’s West University neighborhood might expect a 2% earnest money deposit or even 3%, but in Santa Fe’s Eldorado, 1% might be customary. Or vice versa. If your seller is asking you for a larger earnest money deposit to show good faith, make sure you are comfortable with the request and be flexible if you can. In the end, this may aid negotiations because more is at stake.
Be Nice. And Make Sure Your Agent Is Too.
Sadly, this is probably the least understood advantage you can bring to the table. Sellers respond to agents and buyers who are congenial, personable, kind, and easy to work with. You can negotiate with an iron fist but do it behind a velvet glove. If you’re not super capable in that department, choose an agent who is. It sounds trite to give people advice to smile and make conversation, but it is a critical element of the negotiation and contracting process. Forging relationships, especially between strangers who have not done business with one another, is critical.
Be Rational About Inspection Results
Many deals fall apart because buyers and sellers can become inflexible and rigid at the point at which inspection results are returned. It’s important to keep a level head and remember what you may be asking a seller to do so that compromise remains an option and you can reach the closing table. A 101-year-old home in New Mexico is going to have some quirks! Keep your requests in perspective, be reasonable, be prepared to defend what you’re asking for, and remember that compromise may save you more money than an overly stout demand.
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