If you’re trying to purchase a home in the Austin area right now, you know it’s nuts out there. It makes finding toilet paper in April of 2020 look like a piece of cake. Securing that coveted PS5 last month - a walk in the park compared to buying an Austin home. Needless to say, it’s a challenge. I like challenges and if you do too, keep reading to learn how you can buy a home in Austin right now.
Appease The Sellers
Sellers in Austin obviously have the upper hand right now, so you need to do everything you can to make sure they like you and your offer. Find out what makes them tick, what terms they will find most favorable, and how you can win them over. This may involve some deep cyber stalking. After you learn that seller Mary has been pinning recipes for banana bread you could deliver your offer with a loaf of MeMa’s famous bread and even include her secret recipe. Or, you may just be able to ask what the seller's plan is in order to craft an offer that is most appealing to their needs and timeline. If the home is vacant, they probably want to close as soon as possible. However, if the sellers still live in their home, they may favor a closing date that is farther out or a lease back for a few months so they have enough time to find a new home. Sellers know that the market is in their favor right now, so many have already outlined the terms they find most favorable before their home even hits the MLS. Make sure to inquire as to what these are so that you can draft an offer to match.
Cash offers always rank favorably among home sellers. When a purchaser is paying cash they can close quickly and there’s no potential for a contract falling apart due to issues with funding. In today’s omnipresent multiple offer situations, cash offers are becoming quite popular. If you can pay cash for a home, offer cash! You can always finance after you purchase the home. Don’t have a few hundred grand under your mattress? Just sell your first born child. Rob a bank or perhaps it’s time you start trying your luck with the Powerball. I hear there’s a jackpot of $970 million up for grabs tomorrow night. With that kind of payout you may be able to secure more than one house in the Austin market!
All jokes aside, there are ways you can leverage yourself to place an all cash offer on a home. You may be able to get a secured loan that uses your investments in stocks as collateral or perhaps you have a wealthy relative that will make you a personal loan. If you need to sell your current home before you can buy a new one, there are various companies such as homeward who will put a cash offer on your new home for you. They then lease your new home back to you until you sell your old home. Once your old home sells, you can get a traditional mortgage to buy the home back from them at the same price they paid for it in cash. Of course, they do charge a fee for this service. Ultimately, mortgage rates are at an all time low, but everyone knows it. If you can find a way to offer cash up-front, you will have the upper hand.
Waive Your Appraisal
If you didn’t win the lottery or scourge up enough capital to be able to offer cash for your dream home, you best consider waiving that appraisal to some extent. Austin homes are selling so quickly right now, they are outpacing the market data. People are paying more for homes than they are worth based on the published comparable home sales data. This means your home may not appraise at the purchase price.
Without an appraisal waiver addendum, the sale of the home is contingent upon the home appraising at the contract price. For sellers, this is a risk that the sale may not close. By adding the appraisal waiver addendum you are increasing the likelihood of your offer being accepted. But, if you couldn’t afford to pay cash for the house, you probably don’t want to waive the appraisal entirely. You may be able to do a partial waiver in that case. In this scenario, you would be agreeing up front that if the home appraises for less than the contract price you would be willing to bring additional cash to the table to make up the difference. And, you are capping the amount of cash you would bring making this a partial waiver.
Let’s say you put in an offer on a home for $500,000, and you are planning to put 20% down ($100,000). You do have $200,000 in cash. If the home appraised for $400,000 and the lender required you to put 20% down they would only loan you $320,000. Technically, you could still afford to make up the difference. So you may want to do a partial waiver of your appraisal contingency. This ensures that if the home appraises for less than $400k you don’t have to move forward with the offer and your earnest money will be returned, but if the home appraises for between $400-$500k you will still be on the hook to comply with the contract and purchase the home. You should definitely consult with your mortgage lender before agreeing to waive your appraisal contingency.
Forget about an Option Period
When you put in an offer on a home in Austin you usually pay a few hundred dollars to the seller for an option period. The amount of option money you pay and the length of the option period are both negotiable. The option period allows you the time to do all necessary inspections and you can back out for any reason during the option period and get your earnest money back. I used to say the typical amount for an option period is a few hundred dollars for a week long option period. Today, that’s not going to cut it.
Many buyers are foregoing their option period all together or offering thousands of dollars for a very short (1-2 day) option period. While I wouldn’t necessarily recommend giving up the opportunity for an option period all together, you may want to modify how you approach the option period. Make it as short as possible. If you can get in an inspector within 24 hours, you do not need a 7 day option period. If you are fairly confident there aren’t major issues with the home that would be deal-killers you may want to increase the amount for the option money. At the end of the day, option money is money that you may lose if you don’t go through with the deal. It’s kind of like gambling- only put in as much as you are comfortable possibly losing.
Pay for Everything
In normal times, the seller typically pays for the owner’s title policy in Texas. These are not normal times. Offer to pay for the title policy. If you need a new survey, pay for that too. A designer handbag for the seller- it could work. Were you thinking of asking for the seller to contribute towards your closing costs? Good luck with that. Perhaps you assumed getting the sellers to pay for a home warranty was standard practice- not anymore. These days, the buyer who pays for negotiable items is often the buyer who wins in a multiple-offer situation.
All in all, don’t lose hope if you want to buy a home in Austin in the near future. While this slightly satirical commentary on the state of the current Austin market has many truths there are still ways to buy a home in Austin without throwing your entire life’s savings into it. Take a look at my other post, How to Win in a Multiple Offer Situation for less risky tips for crafting an appealing offer.
Pay close attention to homes that have been on the market for a few weeks that others may have overlooked. You may not be able to buy your dream home right now, but that doesn’t mean you can’t make a home your dream home. Homes that look beautiful and show wonderfully will go quickly and with many of the terms outlined above. Some home sellers mistakenly choose a poor listing agent who decides to market their home with inferior quality cell phone photos that make me cringe. This does not mean the home doesn’t look great in person.
Buying a home in Austin right now can be a challenge, but I know you are up for it! If you want help navigating this insane Austin market, contact me today.
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