Ready, set, bid: A winning strategy for the ‘new housing market’

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Published Date 12/30/2024

Things have changed. Again. The housing market is about to heat up. According to Realtor’s Julie Gerstein, with interest rates easing, more prospective homebuyers are likely to enter the market. But like a cat ready to pounce, it means becoming both competitive and creative to beat out other bids.

“Though falling mortgage rates are sure to entice some homebuyers, the vast majority—about 86% of existing mortgages—have a rate of 6% or lower. And 3 in 4 outstanding mortgages have a rate of 5% or lower,” says Realtor.com senior economic research analyst Hannah Jones. “This means that buyer demand will likely trickle in as rates fall, but many homeowners may still feel ‘locked in’ by their current mortgage rate until rates fall further.”

Gerstein reports that last week, the Federal Reserve delivered another interest rate cut— but it won’t deliver any immediate relief for mortgage rates. “The cut was widely expected by investors, and it is already largely priced into the long-term bond markets that ultimately determine interest rates on home mortgages,” she says, adding that for the week ending Dec. 19, rates for 30-year fixed mortgages ticked up, according to Freddie Mac.

For the past 12 months, homebuyers have been slowly digesting higher rates and are gradually willing to move forward with buying a home, resulting in additional purchase activity, says Sam Khater, Freddie Mac’s chief economist. “As a result, the housing market is not stuck in its usual December deep freeze.”

“We see some indicators possibly reflecting an end-of-the-year uptick in activity as both buyers and sellers look to close on the purchase or sale of a home before the new year,” explains Realtor.com senior economist Ralph McLaughlin in his analysis. And homebuyers? A sea of forlorn souls are now poised to step off the sidelines to lock in a deal should the right property present itself.

What to do? First off, be prepared with a pre-approval. Experts agree that one of the best things a prospective buyer can do is to have financing all set before making an offer. “That doesn’t mean simply gaining a verbal pre-approval, but having all of your paperwork and ducks in a row” says Gerstein, who reasons that it shows the seller they are serious buyers.

Getting a basic online approval without documents verified might be a crap shoot, say experts, as it presents a higher-risk situation for the seller. Why? They don’t really know if you truly qualify. A fully underwritten approval is as close to cash as you can get. And it doesn’t cost you anything to get a fully underwritten approval apart from possibly having to pay for a full credit report. So make sure you are using a lender that will put in the work to give you the best shot at winning.

Most mortgage companies can get you fully approved within 15 days, offering you more leverage than ever. To boot, it’s better than waiting once you identify a home you want to buy and possibly losing out in a bidding war.

“I recently experienced this firsthand with a property we renovated and sold,” says Florida-based Realtor Ron Myers. “We had the house on the market for just over 30 days and received two full-price offers. At first, we thought we might be headed for a bidding war. One buyer was even willing to increase their offer by $5,000 over asking, which is great. But here’s where things got interesting: While the higher offer was tempting, the other buyer had something even more valuable: They were pre-underwritten by their lender. Their financing was essentially locked in, and all they needed was to find the right property to close on their loan.” On top of that? The lender could close in just two weeks.

Cash, however, is still king. Cash offers are very appealing because they eliminate the uncertainty of mortgage approval, making the transaction faster and more secure, says Gerstein.

Yet another way to beat out the competition is to set up an escalation clause, allowing you to put a bid in that has a threshold, enabling you to increase that bid based on what other offers come in.

“For example, a buyer could offer $600,000 for a home and add in a clause that says they will go $1,000 over the highest offer at a price not to exceed $625,000,” explains Ellen Qian, a New York-based agent.

If cash is king, flexibility is its queen — like offering to cover closing costs or allowing the seller to choose the closing date. In other words, it’s all about making the seller feel more confident that the deal will go through without any hitches. It’s all about compromise when it comes to your must-have list, focusing on your top three to five priorities, rather than expecting every item to be checked off, Gerstein advises.

Got a house to sell? It also helps if there’s flexibility around a move-in date. One Missouri agent reports, “Back in 2020, when homebuyers were fiercely competing, I had a client offer a seller an option to live in the home for 60 days after closing at no charge. This really made my buyer’s offer stand out from the rest.”

Of course, a seller has no idea if you will sell your current home or when. There is no incentive for them to wait around and hope it happens. The fewer requests you come in with, the easier it is for them to choose you over the other person that mandates a slew of repairs and special requests.

And this is NOT the story of the “Tortoise and the Hare.” Moving slowly is not a tactic. When your Realtor advises you to move quickly, that means now, adds Gerstein.

Another way to show you’re serious about the home is by limiting the timeframe of your financial contingency or waiving it entirely. “If you can waive the appraisal, that could be a game changer,” says another agent. “This strategy works best when buyers have the financial capacity to absorb any shortfall between the appraisal and the purchase price.”

As much as it might be tempting to forgo an inspection to get the home you want, buyers should still have one performed, whether the deal is contingent on the results or not. “It’s just too risky and could lead to costly surprises later on,” says Connecticut-based Realtor Dave Flanders. “Skipping these protections might win the bid, but it could also leave you facing expensive repairs.”

Gerstein agrees. “That said, another way for buyers to look more attractive is to offer to take on any repairs the report might highlight. “If other offers require 20 repairs and you ask for only one, who do you think the seller might favor?”

As for sweetening the deal, there are numerous things you can do to help sway a seller your way. You can create a bond with the seller by writing a letter — especially if you know the seller is very attached to their home. An emotional touch creates attachment on both ends. Explain why you love their home, signaling to the seller that the home will be well cared for.

One caveat: Do everything through your agent, not the seller directly, as that could be seen as intrusive and uncomfortable. Trust that your agent will present your offer in the best possible light. And perhaps 2025 will be your year to be a homeowner at last.

Realtor, TBWS

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