2020 was a banner year for real estate sales and values in the Bay Area and throughout the country. If you were trying to buy last year there’s a good chance you were in one or possibly several competitive situations and you are still hoping to find the right house at the right price. In the meantime, as of late February the interest rates on 30 year fixed loans have risen to 3%, bouncing off a low of about 2.625%. That might sound like a lot, but on a $1,000,000 mortgage the payment difference is only about $200/month. It’s probably not enough to get you to take a seat on the house hunting sidelines, but you are likely feeling the squeeze and some anxiety about getting a home sooner rather than later when the rates may rise further.
If you are looking to purchase a home in the spring of 2021 get ready, there will likely be more competition than you faced over the past six months. That’s how the market works, in the spring we see the most home buyers in the market. The good news is that we also will see the most inventory. We are unlikely to see enough inventory balance out the market. Sellers will still have the advantage and have their choice of competing offers.
Once you have found the house you REALLY want, you are going to have to write a better offer than other the competition. You’ll want to have as much money down as possible, contingency timeframes minimized, and you’ll even consider waiving inspection contingencies if you feel comfortable with the pre-inspections the sellers have completed. There is a risk to waiving contingencies. However, if the sellers have used the same inspectors you would use and you wouldn’t be ordering any more inspections anyway then you are in a safer place to release physical inspections with your offer. If the sellers don’t have inspections up front you really should have inspection contingencies.
Waiving financial and appraisal contingencies can be dicey as well. What happens if a property doesn’t appraise but you released appraisal contingency with your offer? It’s not a big deal if you are coming in with a of cash down. Basically, as long as you are coming in with 20% or more of the appraised value you will not have to come in with extra cash. I am knocking on wood as I write this but we have not seen issues with properties not appraising lately, and I’ve been part of lots of large overbids. You should of course talk to your lender and Realtor about this strategy. Furthermore, talk to your lender about your loan in depth before you make an offer. If the lender has submitted everything to underwriting, and your lender sees no issues in the loan funding you might consider releasing your loan contingency with an offer.
There are risks to the strategies of releasing contingencies with an offer. You’ve got few if any ways out of a contract once it’s accepted and your deposit becomes non refundable if you back out. The reward is potentially differentiating yourself from the other buyers making offers. In the past year I’ve looked at lots of offers that didn’t have contingencies, many which my sellers accepted. Once you have decided how you want to approach contingencies the last and likely most important thing to consider is what price to offer?
Over the years in multiple offer situations my advice has always been consistent. Offer as much money as you can where you feel like you put your best foot forward and if you don’t get the house you will be fine letting someone else have it for more money. If you miss out, just remember there is always another house coming on the market so don’t get discouraged. You don’t want to give up when the next house would have been perfect, and it could have been yours.