Mark Dickinson logo

Assisting Buyers and Sellers .. since 1982

Broker Associate
RE/MAX On the River
Newburyport, MA

Cell: 978.360.2000
Office: 978.499.8808
Fax: 978.499.8816

E-Mail Mark: Mark@MarkDickinson.net

5 Ways to Creating a Winning Offer in Today's Real Estate Market

 

5 Ways to Write a Winning Offer in Today’s Real Estate Market

Our nation is in the midst of a serious housing crunch. Last year, a lack of inventory and soaring prices left many would-be homebuyers feeling pinched. But now, with interest rates climbing, many of them are also feeling desperate to lock in a mortgage—which has only added fuel to the fire.1

Fortunately, if you’re a buyer struggling to find a home, we have some good news. While it’s true that higher mortgage rates can decrease your purchasing budget, there are additional ways to compete in a hot market.

Yes, a high offer price gets attention. But most sellers consider a variety of factors when evaluating an offer. With that in mind, here are five tactics you can utilize to sweeten your proposal and outshine your competition.

We can help you weigh the risks and benefits of each tactic and craft a compelling offer designed to get you your dream home—without giving away the farm.

1.   Demonstrate Solid Financing

The reality is, no one gets paid if a home sale falls through. That’s why sellers (and their listing agents) favor offers with a high probability of closing. 

Sellers particularly love all-cash offers because there’s no chance of financing issues cropping up at the last moment. But don’t despair if you can’t pay cash for your home. According to the National Association of Realtors, only about 1 in 4 home purchases are all-cash deals, which means the vast majority are financed with a mortgage.2

If sellers are assured that financing will come through, buying with a mortgage doesn’t have to be a big disadvantage. The most important step you can take as a buyer is to get preapproved before you start looking for homes. A preapproval letter shows sellers that you are serious about buying and that you will be able to make good on your offer. 

It’s also important to consider the reputation of your lender. While sellers may not know or care about a lender’s reputation, their agents often do. Some lenders are much easier to work with than others, especially if you are pursuing certain types of mortgages like FHA or VA loans.3 If so, you’ll want a lender who specializes in these types of mortgages. If you’re unsure who to choose, we are happy to refer you to reputable lenders known for their ease of doing business. 

2.   Put Down a Sizeable Deposit

Buyers can show sellers that they’re serious about their offer and have “skin in the game” by putting down a large earnest money deposit. 

Earnest money is a deposit held in escrow by a title company or the seller’s broker or lawyer.  If the purchase goes through, it is applied to the down payment and closing costs—if the sale falls through, the buyer may lose some or all of that deposit.

While an earnest money deposit is typically around 1-2% of the sale price, offering a higher deposit can help demonstrate to the buyer that you are serious about the property.4 However, this strategy can also be risky. We can help you determine an appropriate deposit to offer based on your specific circumstances.

3.   Ask for Few (or No) Contingencies

Most real estate offers include contingencies, which are clauses that allow one or both parties to back out of the agreement if certain conditions are not met. These contingencies appear in the purchase agreement and must be accepted by both the buyer and seller to be legally binding.5

Common contingencies include:

  • Financing: A financing contingency gives the buyer a window of time in which to secure a mortgage. If they are unable to do so, they can withdraw from the purchase and the seller can move on to other buyers.
  • Inspection: An inspection contingency gives the buyer the opportunity to have the home professionally inspected for issues with the structure, wiring, plumbing, etc. Typically, the seller may choose whether or not to remediate those issues; if they do not, the buyer may withdraw from the contract.
  • Appraisal: Most lenders will not offer a mortgage on a home that costs more than it's worth. An appraisal contingency gives the buyer an opportunity to get the home professionally assessed to ensure that its value is at or above the sales price. If an appraisal comes in low, the seller may be asked to renegotiate the contract.
  • Sale of a prior home: Some buyers cannot afford to purchase a new home until they sell their previous one. If the buyer is unable to sell their current home within a specified window of time, this contingency enables them to withdraw from the contract without penalty.

Since contingencies reduce the likelihood that a sale will go through, they generally make an offer less desirable to the seller. The more contingencies that are included, the weaker the offer becomes. Therefore, buyers in a competitive market often volunteer to waive certain contingencies.

However, it’s very important to make this decision carefully and recognize the risks of doing so. For example, a buyer who chooses to waive a home inspection contingency may find out too late that the home requires extensive renovations, and a buyer who waives the appraisal may risk their mortgage falling through. If you back out of a home purchase without the protection of a contingency, you could lose your earnest money deposit.6 We can help you assess the risks and benefits involved.

4. Offer a Flexible Closing Date and/or Leaseback Option

When it comes to selling a house, money isn’t everything. People sell their homes for a wide variety of reasons, and flexible terms that work with their personal situations can sometimes make all the difference. For example, if a seller is in the process of planning a significant move, they may prefer a longer closing timeline that gives them time to find housing in their new location. 

Similarly, short-term leaseback options, in which the sale is completed but the seller retains the right to rent the home for a specified period of time, can be compelling.7 These arrangements enable the seller to use the money from the sale of their home to purchase their next house. A leaseback agreement also makes it possible for them to avoid moving twice when their next home is not yet ready to occupy.

Flexible closing dates and leaseback options can provide a powerful advantage for first-time homebuyers. If you have a month-to-month or easily transferable lease, for example, you may be able to offer a more flexible timeline than a buyer who is simultaneously selling their existing home.

Of course, the value of these terms depends on the seller’s situation. We can reach out to the listing agent to find out the seller’s preferred terms, and then collaborate with you to write a compelling offer that works for both parties. 

5. Work With a Skilled Buyer’s Agent

In this ultra-competitive real estate market, one of the greatest advantages you can give yourself is to work with a skilled and trustworthy real estate professional. We will make sure you fully understand the process and help you submit an appealing offer without taking on too much risk. 

Plus, we know how to write offers that are designed to win over both the seller and their listing agent. The truth is, listing agents play a huge role in helping sellers evaluate offers, and they want to work with skilled buyer’s agents who are professional, communicative, and courteous. 

Once your offer is accepted, we’ll also handle any further negotiations and coordinate all the paperwork and other details involved in your home purchase. The best part is, you’ll have a knowledgeable, licensed advocate on your side who is watching out for your best interests every step of the way.

Helping You Get to the Right Offer

In many cases, a competitive offer doesn’t need to be all-cash, contingency-free, or significantly above asking price. But if you’re serious about buying a home in today’s market, it’s important to consider what you can do to sweeten the deal.

If you’re a buyer, we can help you compete in today’s market without getting steamrolled. And if you’re a seller, we can help you evaluate offers by taking all the relevant factors into account. Contact us today to schedule a free consultation.

Sources:

  1. National Association of Realtors -
    https://www.nar.realtor/newsroom/pending-home-sales-dwindle-4-1-in-february
  2. National Association of Realtors -
    https://www.nar.realtor/newsroom/existing-home-sales-fade-7-2-in-february
  3. Forbes - 
    https://www.forbes.com/advisor/mortgages/housing-crisis-tips/
  4. Realtor.com -
    https://www.realtor.com/advice/finance/earnest-money-deposit-mistakes-buyers-make/
  5. Bankrate -
    https://www.bankrate.com/real-estate/contingency-clause/
  6. Home Buying Institute - 
    http://www.homebuyinginstitute.com/mortgage/risks-of-waiving-a-contingency/
  7. Realtor.com -
    https://www.realtor.com/advice/sell/what-is-a-rent-back-agreement

Higher Rates and Short Supply: The State of Real Estate in 2022

 

Higher Rates and Short Supply: The State of Real Estate in 2022

The last two years caught many of us off guard—and not just because of the pandemic. They also ushered in the hottest housing market on record, with home prices rising nationally by nearly 19% in 2021, driven primarily by low mortgage rates and a major supply shortage.1

But while some had hoped 2022 would bring a return to normalcy, the U.S. real estate market continues to boom, despite rising interest rates and decreasing affordability.

So what’s driving this persistent demand? And is there an end in sight? 

Here are three factors impacting the real estate market right now. Find out how they could affect you if you’re a current homeowner or plan to buy or sell a home this year.

MORTGAGE RATES ARE RISING FASTER THAN EXPECTED

Over the past couple of years, homebuyers have faced intense competition for new homes—in part due to historically low mortgage rates that were a result of the Federal Reserve’s efforts to keep the economy afloat during the COVID-19 pandemic.

However, in response to a concerning level of inflation, the Fed is now reversing those efforts by raising the federal funds rate. And as a result, mortgage rates are rising, as well. Few experts predicted, though, that mortgage rates would go up as quickly as they have. 

In January 2022, the Mortgage Bankers Association projected that rates would reach 4% by the end of this year.2 By mid-April, however, the average 30-year fixed mortgage rate had already hit 5%, up from around 3% just one year prior.3 On a $400,000 mortgage, that 2% difference could translate into an additional $461 per monthly payment.

Since then, mortgage rates have continued on an upward trend. So what impact are these rising rates having on demand? While many buyers had hoped for a cooling effect, experts warn that may not be the case.

Ali Wolf, chief economist at housing market research firm Zanda, told Fortune magazine, "Rising mortgage rates are having a counterintuitive effect on the housing market. Home shoppers are actually sprung into action in an attempt to buy a home before mortgage rates rise any higher."4

Since inventory remains low, the resulting “race” has kept the homebuying market highly competitive–at least for now.

What does it mean for you?

While current 30-year fixed mortgage rates represent an increase over previous months, they remain well below the historical average of 8%.5 As inflation across the economy continues, the Fed is likely to raise rates further this year. Buyers should act fast to secure a good mortgage rate. We’d be happy to refer you to a lender who can help.

For sellers, speed is also of the essence. The pool of potential buyers may shrink as mortgages become more expensive. And if you plan to finance your next home, you’ll want to act quickly to secure a favorable rate for yourself. Contact us today to discuss your options.

HOME PRICES KEEP CLIMBING 

History shows that higher interest rates don’t necessarily translate to lower home prices. In fact, home prices rose 5% between 1980 and 1982, a period of significantly higher mortgage rates and inflation.5

Forecasters expect that home prices will continue to go up throughout 2022, though likely at a slower pace than the 18.8% increase of the last 12 months.4 Bank of America predicts that prices will be up approximately 10% by the end of this year, while Fannie Mae estimates 11.2%.6,7

In addition to limited supply and a race to beat rising mortgage rates, home values are also climbing because of positive economic indicators, like low unemployment.8 Plus, rents are soaring–up 17% from a year ago–which is prompting more first-time homebuyers to enter the market.9 Add to that the continued popularity of remote work, and it’s easy to see why property prices continue to surge.

However, it’s not all bad news for prospective homebuyers. Economists expect that as mortgage rates rise, the rate of appreciation will continue to taper, though the effect may be gradual. 

“Eventually mortgage rates will slow down home prices,” according to Ken Johnson, an economist at Florida Atlantic University interviewed by Marketwatch.10 “We should not see rapid upticks in prices as mortgage rates rise.” Forecasters agree—Fannie Mae expects price increases to slow to 4.2% in 2023.7

What does it mean for you?

While the pace of appreciation is likely to decrease next year, home prices show no signs of going down. However, current labor shortages are leading to higher salaries and better job opportunities for many workers. You may find that your income growth outpaces home prices, making homeownership more affordable for you in the future.

For homeowners, the outlook’s even brighter. You could find yourself sitting on a nice pile of equity. Contact us for a free home value assessment to find out.

INVENTORY REMAINS EXTREMELY LO

As noted, one of the largest hurdles to homeownership is a lack of inventory. According to a February 2022 report by Realtor.com, there’s an expanding gap between household formation and home construction, which has resulted in a nationwide shortage of 5.8 million housing units.11

The origins of this shortage date back to the 2008 housing crisis, during which crashing home values led contractors to stop building new properties—a trend that has not been fully reversed.12

That decline in home construction also resulted in a decrease in the number of home building professionals, a trend that was exacerbated by job losses during the COVID-19 pandemic. Now, many builders are limited by their ability to find qualified labor.

Another major challenge is a staggering increase in the cost of materials. Pandemic-related supply chain shortages have been a significant driver, with home building material costs rising on average 20% on a year-over-year basis. The price of framing lumber alone has tripled since August 2021.13

These trends add tens of thousands of dollars to the cost of a typical home. Factors like a lack of buildable land in many areas, restrictive zoning, and a shortage of developers are also contributing to the issue.14

Most homebuying experts agree that the lack of inventory is the primary factor driving rising housing prices and unprecedented competition for homes. With available housing units near four-decade lows, the end of the current housing boom is not yet in sight.15

What does it mean for you?

Prospective buyers should be prepared to compete for a home, since low inventory can lead to multiple offers. You may also need to expand your search parameters. If you’re ready to look, we’re ready to help.

For sellers, the picture is rosier. In this strong market, your home may be worth more than you realize. Contact us to find out how much your home could sell for in today’s market.

WE’RE HERE TO GUIDE YOU

While national real estate trends can provide a “big picture” outlook, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the local issues that are likely to drive home values in your particular neighborhood. 

If you’re considering buying or selling a home, contact us now to schedule a free consultation. We can help you assess your options and make the most of this unique real estate landscape.

Sources:

  1. Marketwatch - https://www.marketwatch.com/picks/home-price-appreciation-will-normalize-what-5-economists-and-real-estate-pros-predict-will-happen-to-home-prices-in-2022-01646940841
  2. Bankrate - 
    https://www.bankrate.com/mortgages/mortgage-rate-forecast
  3. CNBC -
    https://www.cnbc.com/2022/04/16/heres-how-much-the-same-mortgage-costs-now-compared-to-last-year.html
  4. Fortune -
    https://fortune.com/2022/03/23/housing-market-interest-rate-economic-shock/
  5. National Association of Realtors -
    https://www.nar.realtor/blogs/economists-outlook/instant-reaction-mortgage-rates-april-07-2022
  6. Fortune -
    https://fortune.com/2022/03/16/home-prices-2022-2023-bank-of-america-forecast-mortgage-rates/
  7. Fortune - 
    https://fortune.com/2022/03/07/what-home-prices-will-look-like-2023-fannie-mae/
  8. Fortune - 
    https://fortune.com/2022/03/17/home-prices-drop-housing-markets-california-michigan-massachusetts-corelogic/
  9. CNN - 
    https://www.cnn.com/2022/03/23/success/us-national-rent-february/index.html
  10. MarketWatch -
    https://www.marketwatch.com/story/home-prices-increase-at-one-of-the-fastest-rates-on-record-but-higher-mortgage-rates-should-slow-future-growth-11648559497
  11. Realtor.com -
    https://www.realtor.com/research/us-housing-supply-gap-expands/
  12. NPR -
    https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain
  13. Investopedia -
    https://www.investopedia.com/housing-market-dips-in-early-march-2022-5222449
  14. NPR -
    https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain
  15. Fortune - 
    https://fortune.com/2022/03/14/housing-market-key-metric-inventory-zillow-bad-for-buyers/

Essex County Housing Report June 2022

 Essex County June Housing Report 6/12/2022

Year Over Year, May 2022 vs May 2021, Home Prices (Singles + Condos) continued to rise, but at a more modest pace. Unit sales declined and Active Listings and Inventory continued to Fall.

Month Over Month, May 2022 vs April 2022, Home Prices (Singles + Condos) were up. Unit Sales were up strongly which offset any increase in Active Listings which resulted in falling inventory.

30 year mortgage rates have risen dramatically since Jan 3rd from 3.27% to 5.85% and will likely rise to 6+% as the Federal Reserve fights inflation by raising interest rates and reducing its purchase of Government and Mortgage Backed Securities. This will dampen housing demand and slow the rate of price increases.

Bottom line, the Sellers’ Market remains intact as inventory remains at an extremely low level. However, home price increases are slowing down as rising mortgage rates take effect.

      Month Over Month, May 2022 vs April 2022,

  • Median Sold Prices:
    Single Families +6.9%; Condos -1.1%; Multi-Families +14.7%

  • Unit Sales: 
    Single Families +41.0%, Condos +22.5%, Multi-Families -4.8%

  • Active Listings:
    Single Families +12.9%, Condos -8.2%, Multi-Families +9.8%

  • Current Months of Inventory:
    Single Families 1.2, Condos 0.9, Multi-Families 2.1.

    Year Over Year, May 2022 vs May 2021

  • Median Sold Prices: 
    Single Families +5.8%; Condos +9%; Multi-Families +22.5%

  • Unit Sales:
    Single Families -4.9% , Condos +2.9%, Multi-Families -26.8%.

  • Active Listings:
    Single Families -15.3%; Condos -36.8%; Multi-Families -28.5%

  • Months of Inventory:
    Single Families -7.7%, Condos -35.7%, Multi-Families 0%.