During our home building process I have referenced that buying a home in a hot market can be stressful. Winning in a multi-offer, new home construction environment can be difficult and does not come without some sacrifices.
Please note that I am sharing this advice directly from our own personal experience in preparing a winning offer and this advice would not apply in all scenarios, including:
- The builder has granted you a ‘first right of refusal’
- Lots are sold on a ‘first come, first serve’ basis
Be sure to ask the sales office the ‘rules of the game’. These rules can change without notice as the builder adjusts to manage the volume of new home sales. When the volume of incoming offers is high (few homes, many offers), you’re more likely to need a ‘best offer’ game plan. When the volume is slow (many homes, few offers), the ball is in your court to determine how much you’re willing to ‘ask’ for in your offer.
Questions to ask before you submit an offer:
If you plan to use a realtor to submit your offer, they should have these questions covered – but if you’re planning to represent yourself, like we did, these just might tip the house in your favor.
- First and foremost, head over to my post “Model Homes 101 and Questions to Ask Before You Buy” and make sure you have all the answers to those questions covered.
- Next, ask the sales agent how the builder is planning to review offers. Are they first come, first serve or is there a hard deadline to submit your offer by?
- Ask to see a draft of the purchase and sales agreement. But know that there is little to no room for negotiating here. If you’re worried, it may be worth running it by a real estate attorney for piece of mind. Most attorney’s will review this agreement for about $300. But do note that the turnaround time could be days or weeks before they get back to you.
- What is required up front if your offer is accepted? Typically a builder is going to expect earnest money upon an accepted offer and anywhere from 3-10% of the total purchase price as a deposit once you make your personalization selections. Full transparency: for us this was about $60,000. If you do not have liquid assets to cover the down payment, there are still options.
- For example: If you own your current home and have enough equity in it, you could secure a HELOC (Home equity line of credit) to borrow against your equity now and simply pay the loan off at the close of sale for your existing home.
- Another popular option is borrowing money from a relative as a ‘gift’, but be sure to discuss this with your lender first.
- Ask if there are any promotions or incentives available. Builders often offer these at the beginning and end phases of a new development and sometimes during the holidays if there is a slump in sales. They also almost always offer a credit to the design studio or toward your closing costs if you use their lender to finance your mortgage.
- Be bold. Ask the sales agent how many serious buyers have, or are ready to make offers on the same lot and house you want.
- And one note for consideration: If the real estate market was in your favor, you would normally negotiate things like window coverings, appliances or additional design studio credits. However in a multi-offer scenario, it is best to leave these out of your offer requirements as the builder will always accept an offer that checks all the same boxes as yours, but is not making demands.
Stacking the deck when you’re competing with multiple offers: Crafting a “Best Offer”
What makes a “best offer” in a multi-offer situation? There are a variety of options in doing this, but listed below are the ones I learned in working with both sales agents and realtors who know their stuff.
- Offer the asking price and add an escalation clause (consult a real estate attorney to help you write this).
- Offer to use the builder’s lender for closing and include a pre-approval from the lender with your offer.
- Write your own offer, AKA: don’t use a realtor. The builder loses money from paying a realtor’s commission on the sale.
- If possible, make your offer “non-contingent”. You will need to demonstrate this with a pre-approval letter from a lender, so be sure to get that done prior to submitting an offer. Otherwise you are considered “contingent”
- Don’t ask for any extras or gimmies, point 7 above.
To be honest, these are all concessions, but if you stack the deck with these points in a multi-offer situation, there’s a good chance you will win that dream home and lot you have your heart set on.
That’s all for today – stay well!