Peterson is right. Between July 2020 and June 2021, homes regularly sold in one week for full asking price. In a hot seller’s market like we’ve seen since the onset of the coronavirus pandemic (and will likely continue to see as we get further into 2022), being a prepared buyer will give you an edge when it’s time to make an offer.
With that in mind, getting a home in 2022 requires a little extra know-how and some savviness on the behalf of the buyer. After extensive research and interviews with Peterson and recent buyer Chloe West, who found her home in an unconventional way, we uncovered eight strategies — you can pick more than one! — that you can use to give you the best chance of getting a home in 2022.
If they have underwriting approval, versus just a preapproval, they’re a much stronger buyer than someone with just a preapproval letter.
- Leslie Peterson Real Estate AgentCloseLeslie Peterson Real Estate Agent at Leslie Peterson Group | Evolve Real Estate Currently accepting new clients
- Years of Experience 19
- Transactions 484
- Average Price Point $832k
- Single Family Homes 364
1. Get as far into underwriting as possible
Once you decide to buy a home, looking into your financing options should be one of the first steps. The process of qualifying for a mortgage includes a few different tiers.
When you want to decide how much you will be able to borrow for your mortgage, prequalification is often the first step. To get prequalified for a mortgage, you’ll submit some basic financial information to your lender. Typically, this includes your income, debts, assets, and credit score.
The lender then uses this information to give you an idea of what you could borrow and what your payments would look like. But there’s a catch: Because you don’t typically have to provide any documentation, nothing is verified, and this loan amount isn’t guaranteed.
Prequalification is a good first step when you start your homebuying journey because it will give you a ballpark idea of your budget, so you know what houses you can look at — but to be a more competitive buyer, you need to go a step or two further.
Preapproval is the next step toward securing a mortgage. In the preapproval process, you’ll usually submit documentation of your financial details, which can include bank statements, W-2s, a credit check, two years of tax returns, verification of your down payment funds, and more.
Once you’re preapproved, your offer on a home is more likely to be accepted because you’ve made it further in the mortgage approval process.
But you’re not finished yet! A preapproval isn’t a guarantee that you’ll ultimately be able to get a mortgage — this is why buyers typically include a financing contingency in an offer, so they’re protected in case financing falls through at a later stage.
If you have some time before you have to start submitting offers, you can go further into the mortgage approval process with some lenders and secure underwritten preapproval.
This means that most of the heavy lifting in the underwriting process has already taken place. Underwriting a mortgage can take as little time as a few days to as long as six weeks while the underwriter looks for any discrepancies in documentation or inaccuracies in the information you submitted to ensure everything is buttoned up tight. When underwriting is completed before you make an offer on a house, it can speed up the closing process, making your offer more attractive to sellers.
The extra time and effort that it takes to get an underwritten preapproval may be worth it. Your offer will look more favorable to the seller because you’re that much closer to securing a mortgage, and there’s less of a chance that the deal will fall through.
Peterson suggests that buyers get as far into the underwriting process as possible before submitting offers, saying: “If they have underwriting approval, versus just a preapproval, they’re a much stronger buyer than someone with just a preapproval letter.” Buyers who go this route may even be able to remove their financing contingency.
What if you don’t have a credit score?
If you don’t have a credit score, the mortgage approval process is trickier, and a preapproval is harder to come by. In order to be approved for a mortgage, you’ll usually have to submit additional information and documentation and go through a manual underwriting process. The sooner you do this, the better.
2. Only include essential contingencies
Speaking of contingencies, Peterson says the fewer, the better.
If you must include contingencies, such as a loan contingency or appraisal contingency to secure a mortgage, try to include as few as possible.
One contingency that can potentially be bypassed is the inspection contingency, if the buyer is willing to buy the home “as is” or if the seller has completed a pre-listing inspection. It’s still smart to get an inspection so that you fully understand the condition of the home you’re buying, but you can write the offer so that the inspection is for informational purposes only, and not a point of negotiation.
3. Lead with your highest bid
In this market, Peterson hasn’t seen many counter-offers coming from sellers because many buyers are making offers over asking price.
“They have to write their highest and best offer the very first time,” Peterson recommends. “It’s mindset — they have to go in with their highest price first.”
4. Be flexible in negotiations
In a hot seller’s market, you probably won’t have a lot of seller concessions or price negotiations like you would in a buyer’s market, where there’s more motivation for a seller to agree to repairs or accept a lower offer.
Sellers likely have more than one buyer lined up, all with their best offers on the table. If you do get to the negotiation stage, be flexible and only focus on your non-negotiables.
5. Choose a top agent
Working with a top real estate agent is key to a successful homebuying process in any market, but it’s especially important in the market that we’ve seen since 2020.
Peterson has been in real estate for 18 years and says she’s never seen the market like this, which is why having an agent to guide you through the process and be your ally is so important.
A top agent can give their full attention to finding new listings and negotiate on your behalf when the time comes. Peterson sees firsthand how a proactive agent can assist their buyers.
Quite often, she says, buyer’s agents are trying to find out when the listing agent is getting ready to present offers to the seller, “and calling us right before we present to the sellers and trying to up the offer — the bidding wars are crazy.”
6. Count your cash
In this market, Peterson highlights that buyers can get a leg up if they come to the table with not only enough cash for a down payment and closing costs, but also enough cash to cover a potential appraisal gap. Because appraisals often can’t keep up with the rising home prices in this market, appraisal gaps — the difference between the appraised price and the offer price — are becoming increasingly common, which means if you want to win the home, you may have to make up the difference in cash or with another form of financing.
According to the NAR 2021 report, Profile of Home Buyers and Sellers, buyers typically paid 100% of the asking price, with 29% paying more than the asking price in order to secure the home.
Peterson sees that appraisals aren’t keeping up with new sales, “so it’s important that the buyer can show that they have enough funds to make up the difference between the purchase price and the appraised value. Sellers are really looking at how much cash the buyer is coming in with.”
If cash offers are common in your market and you’re struggling to compete against buyers who can offer all-cash to sellers instead of including a financing contingency, you might consider thinking outside the box a bit. Some solutions, such as HomeLight Cash Offer, can help you make your entire offer in cash and still take advantage of low mortgage rates by securing a mortgage loan, too. It’s the best of all worlds!
7. Write a love letter — for now
A “love letter” is a letter that a buyer includes in their home offer that explains what they love about the house and why they want to live there. Letters like these can potentially impact which offer a seller chooses. For instance, if a couple is selling the home where they raised their kids, they may not want to sell to an investor who will turn it into an Airbnb. Selling to a young couple who are trying to buy their first home to raise a family may pull on their heart strings as they remember when they were bringing babies home.
Peterson recalled a sale where a seller accepted an offer that was $30,000 lower than the higher bidder because of the letter that the prospective buyers wrote.
This strategy comes with a word of caution, however. As of right now, these types of letters are legal, but they do come with issues that could violate the Fair Housing Act, which prohibits discrimination based on race, color, national origin, religion, sex, familial status, and disability.
A letter like this can reveal personal details about the buyer that could be the basis for potential housing discrimination, even inadvertently. For instance, in the above example, choosing a family over a single person could result in accusations of discrimination based on familial status. The NAR offers guidance when it comes to buyer love letters to ensure that no one is violating fair housing laws.
For now, Peterson recommends including one if you can avoid any fair housing issues and think it might give your offer a competitive edge.
“I’ve seen that make a huge difference to the seller because they may have a huge garden that someone is going to take care of. While we still can, I think that a letter is great.”
8. Ask a friend…and another…and another
Chloe West, a content marketer in Charleston, South Carolina, was looking for a home with her family in the Charleston area and having no luck.
“We had toured and made offers on other homes but been outbid by thousands or tens of thousands of dollars,” she recalls. Because they knew the neighborhood that they wanted to be in, she told her friends in the area to keep their eyes open.
Then they got lucky. “Our friend who lived in a subdivision we loved discovered their neighbor was moving and asked him if we would be able to tour his house before he listed it.”
They set up a time and brought their agent along to have the financial discussion with the owner, asking how much he wanted for the home. They made an offer that day, and the next day, he accepted it!
Chloe shares that “the moral of the story is to make sure that everyone in your circle knows you’re house shopping and to keep their ear to the ground for any neighboring houses that are considering selling, so you can get in before it’s listed.”
Be proactive and think outside the box
The themes for getting a house in 2022 are to be proactive and think outside the box. The days of back-and-forth negotiations with sellers are gone — at least for the moment — because if they don’t like your offer, they probably have several more waiting for them.
Things like getting as far into the underwriting process as possible, having the cash to cover an appraisal gap, and getting the inside scoop on a home before it’s listed can give you an edge that will ultimately lead to your next home.
Header Image Source: (Steven Ungermann / Unsplash)