It’s no secret that buying real estate has become something of a competitive sport across the United States.

Housing inventory is low, yet demand for quality housing is high. To compound matters, new homes aren’t being built fast enough to meet the rising demand for quality housing.

In cities like Denver and San Francisco, inventory shortages are so severe that homes are swept off the market in mere days. In these hyper-competitive markets, cash is king.

Buyers going the mortgage route often find themselves contending with bidding wars and all-cash offers. In the most competitive markets, it’s not uncommon for homes to sell well over asking price.

If you’re looking to finance a home, putting in a competitive offer can be a challenge. How are you supposed to beat multiple bids, not to mention all-cash offers?

We’ve got a few ideas. Here are some go-to tips for staying competitive in today’s cutthroat housing market:

 

Prepare yourself for what’s to come

The first thing you should do when gearing up to buy a home? Get all your ducks in a row. Let’s keep it real: buying a home is stressful.

The more work you can do upfront before entering the market, the better. The following are a few things you can do to get prepared for a tight market:

Get your finances sorted

You should have your finances in order well before even searching for a home.

That means saving up a sizable chunk of money for a down payment, improving your credit score as much as possible, and meeting with a trusted financial advisor to ensure your financial picture is sound enough to take the plunge into a new home.

Pull your credit report to make sure there are no blemishes that need fixing or explaining when it comes time to finance. The better your financial picture entering the home buying process, the stronger your offer will be.

Gather up your records

Buying a home requires a lot of paperwork. To make things easier on yourself, start compiling all of the records and information you’ll need before you start the process.

That way, if you need to order copies of any missing documents, you’ll have plenty of time to do so. Remember that issues with paperwork can lead to financing delays. Have the necessary documents sorted before you begin the process.

At a minimum, you’ll need:

• Income verification such as pay stubs, W2s, 1099s, etc. for the past 2 years
• Bank statements and proof of any liquid assets for the last 60 days that you plan to use for a down payment, closing costs, and reserves.
• Gift letters from any family member that is gifting you money for the home
• Your address/rent history for the past 2 years
• Your employment history for the past 2 years
• Proof of any other income such as disability, dividends, bonuses, social security or pension if you want to use them to qualify.
• Any child support/alimony debts you pay
• Information on any debts you owe such as car loans, your current home, credit cards, student loans, etc.
• Information on non-liquid asset accounts such as life insurance, debts, bonds, stocks, etc.

Strengthen your offer

There is a multitude of ways to strengthen a home offer. Here are a few you should consider when buying in a competitive market:

Include a strong pre-approval or conditional approval

To have your offer considered even when there’s an all-cash offer in the mix, you’ll need a strong pre-approval or conditional approval.

Basically, you want your lender to do as much underwriting as possible up front before you’re ready to make an offer on a home. This shows the seller you’re a serious buyer who’s able to secure proper financing for the home.

Financing issues account for 37 percent of delays to the closing table. A seller wants to minimize the potential for issues.

So, find a lender who will underwrite your finances before you even make an offer on a home.

Put down a competitive earnest money deposit

An earnest money deposit (EMD) shows the seller you’re a good faith buyer who’s ready to close on a home.

Typically, a home seller contractually requires an EMD and it’s common for buyers to put down anywhere from 1% to 3%. But in competitive markets like the Bay Area, buyers tend to put down more, even up to 10%.

If you want to show a seller you’re serious about their home, consider putting in a competitive EMD that will set you apart from the rest.

 

Offer above asking

One way to potentially compete with cash is to offer more than the asking price. Cash buyers often offer just around (or sometimes even a bit below) asking price.

The cash buyer knows their offer is already attractive: it’s easier, faster, and more certain than a financing offer.

One way to combat this is to bid more than asking. In a competitive market, homes often sell for more than asking price, so this is pretty much par for the course. You may also consider an escalator clause, which essentially states that you will meet a competing bid up to a certain price point.

Make a large down payment

A large down payment is another way to strengthen your offer. Of course, it’s common advice that you should save up as much as possible for a down payment when buying a home. But in a competitive market, it’s more important than ever.

You want to show the seller that you’re able to afford this home, and that your financing will likely clear. A sizable down payment can send a message to the seller that you are a serious buyer who’s ready to put your money where your mouth is.

Accommodate the seller’s closing preferences

Typically, a home seller is working on a timeline. They might have another home they’re trying to get into, or they might need to sell to start a job in another location.

Whatever the reason, nearly every seller has a preference as to the timeline for the sale. And not everybody wants to sell as quickly as possible.

One way you can be an attractive buyer is to agree to accommodate this timeline. If the seller is looking to move the home quickly, you should construct your offer to make that possible. If the seller needs to stay in the home for a few months to finish a school year, you might include that concession in your offer.

When it comes down to it, you want your offer to meet the needs of the seller.

As anyone who’s ever purchased or sold a home knows, things don’t always go according to plan. And that makes sellers nervous when they’re choosing an offer.

There are few things more frustrating for a seller than having the deal fall through weeks into the process and needing to start over. Around 5% of real estate contracts are terminated before closing, and many, many more are delayed because of issues with financing.

You can probably understand why a lot of sellers go with the sure thing — cash — over the mere possibility of a buyer securing financing.

A big way you can make your offer more attractive to a seller when competing with cash? Contingency removal.

A contingency is a clause in a real estate contract stating that certain conditions must be met (such as financing or home appraisal) before the sale can clear.

By removing some of these contingencies, you tell the seller “I’m ready to move on this thing, and I’m going to remove as many hurdles as possible to make this sale happen.”

Before choosing to waive contingencies, you should talk with your real estate agent and/or lawyer to make sure you understand the full risks associated with doing so. While removing contingencies can make sense for highly qualified borrowers, you should also know that it can put your earnest money deposit at risk if the transaction falls through.