Keys to Help Buyers Compete in a Seller's Market

In May, the median sale price of homes in the U.S. was up 15.4 percent year-over-year and sales were up 4.2 percent from April. Meanwhile, nationwide inventory remains tight, and the average time a home spent on the market dropped from 46 days to 41

Translation: The market is hot, and sellers have the upper hand. For my clients interested in purchasing a home, knowing how to position yourself as highly qualified buyers can mean the difference in your offer being accepted or passed up for another. As your trusted agent, what can I do to help make sure you successfully bid on the house you want? Here's my advice:

In May, the median sale price of homes in the U.S. was up 15.4 percent year-over-year and sales were up 4.2 percent from April. Meanwhile, nationwide inventory remains tight, and the average time a home spent on the market dropped from 46 days to 41.

Translation: The market is hot, and sellers have the upper hand. For my clients interested in purchasing a home, knowing how to position yourself as highly qualified buyers can mean the difference in your offer being accepted or passed up for another. As your trusted agent, what can I do to help make sure you successfully bid on the house you want? Here's my advice:

1. Encourage Pre-approval

A loan pre-approval offers numerous benefits to you throughout the sales process. For one, it lets you know how much house you can afford, saving you the time you might otherwise spend searching for homes out of your price range.

While house hunting, pre-approval shows sellers that you are committed to buying and already have a lender who has verified your financial ability to do so. This makes your offer more attractive than one that comes with just a cursory financial review.

Finally, once you have successfully bid on the home of their choice, a pre-approval will expedite the loan application and approval process.

The distinction between a pre-approval and a pre-qualification is critical. A pre-qualification is merely a lender's estimate of how much you might be eligible to borrow and therefore does not carry nearly the weight of a pre-approval. With a pre-qualification, there is less certainty that the loan will actually be approved. On the other hand, a pre-approval typically results in a loan approval and signifies that the lender is prepared to offer a loan for a specified amount based on the financial documents already provided by you.

2. Encourage a Large Down Payment

The percentage of homes bought completely with cash has skyrocketed in many major U.S. markets. When entering this competitive environment, a homebuyer should bear in mind that an all-cash purchase, popular with investors due to more stringent loan qualifications, is seen by sellers as the ultimate "solid offer." Therefore, the more cash you can bring to the table, the better. If you can afford it, I encourage you to submit as large a down payment as possible — at least 20 percent or more of the purchase price.

3. Encourage an Offer Without Contingencies

Transaction contingencies can delay or become obstacles to a smooth deal and are frowned upon by sellers. Therefore an offer with little to no contingencies is favored. The three most common contingencies cover buyers in case of problems with financing, appraisal and inspections. A pre-approval eliminates the need for a loan contingency. But if your buyers aren't comfortable eliminating the appraisal and inspection clauses, I encourage you to at least shorten the completion window to days rather than weeks.

Other stipulations to avoid, if possible, include the sale of your current home, your ability to secure homeowners insurance and the sellers' completion of property repairs.

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