The current real estate market in Summit County (and in most of Colorado) is heavily in favor of Sellers right now and Buyers are finding themselves in bidding wars and having to fiercely compete to get a property under contract.
We understand what it takes to get a property under contract and will work with you to achieve your goals of real estate ownership in Summit County.
What To Expect
- You MUST be pre-approved for a loan and have proof of cash funds for the cash down payment.
- This is information we provide with our offer.
- You will be up against cash offers, this is the only way to possibly compete.
- A Local Lender (Summit County) will give your offer preference.
- You will be likely be paying over list price.
- You will likely need to waive some of your contractual rights to be competitive.
- You are not in the driver’s seat, so if are uncomfortable being a buyer in this market, it may be best for you to wait.
Here is a list of trick and tactics we are using to win contracts for our clients:
Complete File Package at Offer Submittal
We insist that your offer be accompanied with proof of your funds and/or a lender pre-approval letter showing you can afford the property. Without these, your offer will end up on a pile that the Seller will not even review.
Using a local Summit County lender makes the listing broker and Seller feel more confident that you will be able to close the deal as our local lenders are savvy with issues that are unique to mountain properties such as investor owned, short term rentals, condotels, and mixed use properties with commercial space. Local lenders also often already have the questionnaires needed to complete loans on properties in our area, so we aren’t having to “reinvent the wheel” as we do with lenders who don’t normally loan in our area.
Also, appraisals have been taking a long time, and if the appraiser knows the local lender, we often get these appraisals done faster. It may not seem fair, but it happens. If you have a letter from Rocket Mortgage or Quicken or any national lender that advertises on TV, your offer will not be accepted.
Over List Price Offer/Escalation Clauses
We are seeing that most properties are selling over list price, and most recently, I have seen 5-10% over. This of course, depends on the list price as the Sellers and Listing Brokers can decide to price based on sold comparables or to choose a price that is over comparables to account for the hot market. With the level of demand, it is very difficult to price properties, and we are generally finding that bidding wars define the final price, not necessarily commonsense comparison of sold similar properties.
Many Buyers are using escalation clauses which state that they will pay $x over the highest offer. Sometimes Buyers are putting caps on the highest they are willing to go, and sometimes they are not. In a multiple offer situation, there are often many escalation clauses, so offers are escalating others. The standard language of escalation clauses state that the Seller has to show the offer which escalated the Buyer’s offer, but Buyers shouldn’t count on getting to see it. The Seller could just simply counter with the price they want and remove the language where the Buyer requested to see the other offer.
The escalation amount has to be a compelling number to outweigh other factors in your offer that may not be as strong. The price of the property determines how much over the Buyer should go, but I always suggest that an escalation be over $1,000 and usually much more than that.
Appraisal Waiver/Appraisal Gap Waiver
Offers well over list price need an appraisal waiver. If you are paying cash, you do not need to worry about an appraisal as you won’t have a lender needing an appraisal. If you have a loan, however, your lender is going to need an appraisal and will only loan a certain “loan to value”. If you are paying well over list price, and not in alignment with sold comparable properties, it is likely that the property will not appraise.
This means that you would need to bring additional cash to closing. So, for instance, if you are paying $1m for a property and putting 20% down, you would bring $200,000 to closing. If the property only appraises for $900,000, you will need to bring an additional $100,000 to closing to make up the appraisal gap.
There are both full appraisal waivers and appraisal gap waivers. Appraisal gap waivers may not be strong enough to compete depending on the price of the property.
We are writing contracts with very short contingency deadlines for inspection, HOA documents, and title. Sellers don’t want to and don’t have to wait weeks for Buyers to decide if they are in or out of the deal.
Expect that decisions about inspection and HOA will be done within one week of making the offer.
Some Buyers are waiving their right to object to inspection items. This does not mean that they are waiving completing an inspection, they are just not going to ask that things be fixed or for money for items that need to be repaired. There can be ways to waive some, but not all, inspection objections such as stating that you will only object to major mechanical systems or items over a certain dollar value. The problem with using that type of language is that it is open to interpretation and can cause disputes during the inspection contingencies.
The Buyer should always retain their right to terminate the deal due to inspection in the event there is something very wrong with the property.
Waiver of Loan Termination – Non-Refundable Earnest Money or Released EM after Inspection
Buyers are waiving their Loan Termination objection and making some or all of their earnest money deposit non-refundable after the inspection (or final contingency) deadlines. Some are even allowing the earnest money to be released to the Seller before closing.
The earnest money gets applied to the purchase price at closing. This gesture is an indication that the Buyer is intent on closing and confident that they will qualify and get the loan.
In areas where there is a transfer tax, the Buyer needs to pay it.
Do not make the mistake of trying to negotiate this item in this market.
Picking Up the Nickels and Dimes
There are some fees in the contract that the Buyer can pay for in order to improve their offer.
- title insurance
- extended title insurance
- closing fee
The title insurance amount is based on the purchase price of the property and whether a title policy has been issued in the last 5 years. This is normally a Seller expense, but the Buyer can certainly pay the fee.
For a $500,000 property, expect around $1,600 for the title policy that hasn’t been reissued in the last 5 years. Extended coverage is $75.
The closing fee is around $300, and while this is usually split between the parties, if the Buyer picks it up, it is saving the Seller $150.
Relationships – Just Be Nice
It pays to have established and good relationships with the brokerage community. If you are working with a brand new broker or someone who is not part of the local brokerage community, this can affect how your offer is received.
It may not seem fair, but it is how business works. We keep open and effective communication with the listing broker, always protecting our Buyer’s interests, and making sure we have the best information possible to write the offer.
We also pride ourselves on our relationships in the community, getting stuff done quickly and efficiently so as to not delay the deal.
Specific Performance – The Ultimate Bargaining Chip
Specific Performance states that if the Buyer is in default (i.e., doesn’t close), the Seller can force them to “specific performance” or having to close.
Would the Seller do this? Who knows? This is for Buyers who are willing to put their money where their mouth is.
If you have any even better tips and tricks, I would love to hear them!
Interested in Buying a home in this competitive market? Contact us today.