The past two years have been a huge challenge for Tucson homebuyers. Although price drops occur daily now, other listings continue to receive multiple offers near, at or above asking price. After 6 months or a year of searching some find themselves still on the hunt with prices now up another 5+% in 2023 over 2022. It's more important now than ever to make offers stand out to sellers without spending more than you absolutely must. Here are several suggestions to help you work with what you have to win the bid for your dream home:
To make your offer, you'll need proof of funds or either a prequalification or a preapproval from a reputable lender. It's better for your offer to be pre-approved, which requires more time and documentation than a prequal. Two otherwise identical offers could reasonably be decided between by which is more ready and has proven more about their ability to close in a reasonable timeframe.
It can be helpful to choose a well-established local lender who uses the standard Pre-Approval and Loan Status Update forms which include all the needed information. Connect to them early to have your preapproval ready when you make your offer. This may help you close faster than other buyers who scurry to secure a last minute prequal. Be aware that certain types of loans can be less attractive to sellers as they might take longer and have more requirements. If you are in a bidding war and have options about which type of loan you use that can provide leverage.
Many buyers need seller concessions in order to make purchasing possible in the current market. (Concessions are paid by the seller toward the buyer's closing costs and/or interest rate buy-down to make the home more affordable.) If you are requesting seller concessions when competing with other buyers, you'll need to make up for the concessions coming back to you. (Check with your lender to learn their requirements and restrictions). (Sellers should review all offers thoroughly to consider the costs of items like concessions and home warranties than reduce their net proceeds.)
A key aspect to the value of any offer is its likeliness to close on time. Unless waived in the contract, Arizona buyers can cancel the sale during the inspection period (in accordance with their contract) for pretty much any reason and have the earnest money returned to them. There are a variety of reasons one may select an offer which isn't the highest dollar amount because it's so important to balance price, terms and a high likeliness that it will close on time.
As an example, you may be required to view the home before making an offer because it is not uncommon for out of state buyers to buy sight-unseen and later cancel. Listings and pictures will present the property in the best possible light without showcasing the weaknesses, and buyers frequently write-off a property as soon as they see it in person if they encounter items like road noise, unwanted views or a unique smell. This is one of many great reasons to accept a backup offer position if you don't win the bidding war. Many contracts fall out of escrow, and you can slide into the number one if and when that occurs with your already agreed-upon offer. (This doesn't even have to stop you from home shopping in the meantime)
Buyers can add an escalation clause to beat out otherwise equal offers while only committing to spend the extra money if they are losing the bidding war. With such a clause the buyer's offer would increase in preset increments up to a predetermined limit, only if they are losing to a higher offer.
You may elect to include a higher-than-average amount of earnest money deposit to show a deeper commitment to the sale. (A 1% earnest money deposit is pretty common in Tucson). This doesn't change the total you pay; but you do pay more prior to closing, and that money is at risk if you fail to comply with the terms of the contract. In Arizona, the earnest money deposit is refundable if the sale is cancelled in accordance with the terms of the contract for a variety of reasons. One must be diligent and respectful of deadlines to protect their earnest money throughout the escrow process.
If it is likely that a property will not appraise for the asking/offer price, you can boost your offer by committing to pay the shortage if that occurs. Putting down more than the minimum deposit on the loan can provide breathing space when an appraisal is being questioned. You would not pay more than you offered in total but may wind up making a larger downpayment. Putting more down than the required minimum can give sellers more confidence in your ability to close.
Buyers who feel priced out of the market may seek a fixer-upper, which can get quite complicated when a loan is involved. Many such homes will not pass inspections or meet the lender's requirements, especially if the home isn't livable. Wrapping repairs into a loan adds additional steps as well while it is very likely to be competing with investors and/or cash buyers who may even waive inspections. Start planning early and brainstorm with your realtor and lender about how to gain an edge and overcome weaknesses with your personal situation. Borrowers cannot waive inspections or appraisals but are often willing to pay more for the same property as they aren't looking to immediately profit financially from the purchase. Even if you have cash, you should never waive inspections unless you know, expect and are okay with the property being far worse than how it appears.
The more you learn the more you improve your buying power! Good luck!