How to Close on a Chicago Luxury Home in a Bidding War

Picture this: You’re shopping for a home and finally find a property that is stunning, special and feels different from the rest. It’s perfect for you, and because you can picture yourself living in it already—well, it must be meant to be.

Odds are, you aren’t the only one who feels this way about that one special home. Because inventories on Chicago homes and condos are still fairly low, it is more the rule than the exception that a great home will go quickly, and buyers will find themselves in a multiple-offer situation with any home they bid on.

Because of this increased competition, I am working with my clients more than ever on how to stand out as a buyer. While it once might have been as simple as throwing more money into an offer, I find it important to explain the different approaches to overcome multiple bids.

The Power of a Real Estate Letter

One strategy that is becoming more commonplace for buyers is penning a letter directly to the seller of a home. Referred to as a cover letter or even a love letter, this more personal communication is said to increase a luxury buyer’s chances of having their offer accepted by 75%. This personal approach can go a long way, which I think speaks to the emotions that are often involved in real estate.

While it might seem to be all about the numbers—highest bid wins, right?—a letter plays into a less black-and-white approach. For one, it gives you the opportunity to stoke the ego of the seller with compliments of their beautiful home. It also shows that a buyer is serious and will be diligent throughout the sales process if anything should come up. And third, it shows that there is a real person behind all the paperwork, and can help the seller feel like they are leaving the home in good hands if that is important to them.

Ultimately, it’s ultimately up to the seller to choose an offer for any reasoning they like. So anything that a buyer can put out there to connect with the seller is a possibility, whether it be to tell them about their family, their work, or their connection to the home or neighborhood via a personal note.

Other Strategies for Purchasing with Multiple Offers

While a letter may be effective for some, real estate is a business after all, and many sellers are just as motivated by knowing that the transaction will go smoothly. The Wall St. Journal recently reported on the various tactics that buyers are using to make their bids more competitive, with more common approaches including:

All cash: Yes, it’s still king. And it’s not just more cash that seals a deal. Cash rules in real estate because, the lower the risk of a sale going through without issues, the greater the appeal of the offer will be to most sellers. Paying in cash ensures a seller that a deal will close, and will do so quickly. High-end sellers in particular tend to be less price sensitive and might take less money for the promise of an all-cash offer.

Escalation clause: This is an arrangement that automatically increases a buyer’s bid if a competing buyer bids higher. It’s like an upfront guarantee to the seller that they’ll get the very best price for their property.

Waiving inspection contingencies: This means the potential buyer cannot cancel or renegotiate the contract based on the results of a home inspection. Not only does this cut down on the time to close, it ensures the seller won’t hit any snags if the home inspection reveals anything that might make the buyer want to rework the terms of their offer.

Waiving financing contingencies: This means the potential buyer’s offer is not dependent on his or her ability to obtain financing. With the influx of all-cash offers, this is becoming less effective of a strategy for buyers, and in some areas might even be mandated for your offer to be considered.

Pre-inspection: This is when a potential buyer commissions an inspection before making an offer. This ensures the seller that the buyer is confident in the property upfront, and that the closing process won’t be held up by an inspection timeline or any issues that get brought up.

If you’re in the market for a Chicago home or condo, it’s important to walk through some of these strategies with your agent so you know exactly what you’re able to offer when you find that home you love. Transactions move quickly and competitively, and my 25+ years of experience can help you navigate some of the less-charted territory we’re seeing in the luxury market today and help you close a sale on a great Chicago home.

For information on purchasing a Chicago luxury home or to see what’s on the market now, contact me at (312) 498-5080 or email me at ssalnick@dreamtown.com.

Sellers are in Control When Negotiating a Chicago Real Estate Purchase

You know how the market goes: there’s a buyer’s market, and there’s a seller’s market. Not unlike the stock market, it waxes and wanes in either direction, which can make it difficult (if not impossible) to perfectly time a real estate transaction.

We spent a good number of recent years with buyers holding the upper hand in Chicago real estate, but as the market (especially the luxury market) continues to thrive, the advantage has shifted to the sellers. Even with an improving market, the inventory of Chicago homes for sale remains limited, so in turn, buyers are limited as well. With little supply and lots of demand, buyers are competing for homes to buy, and sellers end up with a higher sale price than they may have expected.

Chicago Real Estate Selling Above Asking Prices
Crain’s recently reported that 20 percent of homes sold in the first quarter of 2014 went for more than their asking price—that’s the highest it’s been since 2007. I think there are a couple of things at play here:

• These higher numbers could be explained by a still hefty number of foreclosures and short sales on the market—these are priced low from the start, so there’s not a big surprise that they would sell above the asking price.

• But, even non-distressed sales-over-asking-price are up from last year. These are the types of sales most buyers are looking for, and they are in short supply. If you want a conventional sale, you’ll likely be bidding against one or many other buyers who do as well.

• Luxury buyers especially are moving not for the sake of it, but because they need something—more square footage, additional bedrooms, to escape the suburbs. These buyers want something on par or better than what they live in now, and those properties are also scarce in Chicago real estate.

With all of these factors at work, bidding wars are quick to creep in and drive up the price of the city’s desirable properties.

So what’s a buyer to do? Or even a seller, for that matter?

If you’re a seller, you may have a decision to make when pricing your home for sale: price it low and hope it strikes enough interest and offers that will drive up the price. Or, ask for the amount you want up front, and hope buyers don’t think you’re priced too high.

If you’re a buyer, this certainly doesn’t mean you can’t get a fair deal. Don’t forget that a real estate offer isn’t entirely made up of dollars, and offering good terms can go a long way. An all-cash purchase, a short closing period, a pre-approval on a mortgage can all help you in getting a real estate deal done.

Also, I encourage buyers to really consider what is at the top of your wants/needs list in a new home. If you’re looking for the things other buyers want—a top neighborhood, ample square footage, new construction, etc.—expect that it will cost premium dollar. Prioritize your own needs and see if anything might help shift the expected price.

Of course, this isn’t anything a buyer or a seller has to go at alone. For nearly 25 years I’ve worked with clients in every state of the market, from good, to bad, to worse. The best course of action will vary based on your own situation, and the right agent will help you work through that. If you’re in the market for Chicago real estate, contact me to talk more about what you’re looking for. Call me at (312) 498-5080 or email me at ssalnick@dreamtown.com.

Connecting with Sellers is Key for Getting the Chicago Home You Want

This week we discussed the competition many buyers are facing when purchasing a Chicago home. Low inventories, rising mortgage rates and increasing prices have all contributed to putting more buyers into the game, leading to bidding wars and heavy competition in the market.

If you find yourself in a bidding war, many buyers are taking an extra step to connect with the sellers on a different level. This goes beyond tossing out the highest dollar amount, but instead means introducing yourself and making a personal appeal to the people behind the for-sale sign.

How to Stand Out When Making a Chicago Real Estate Offer

Real estate is a business, so making such an appeal isn’t going to get you a lower price or a better deal. But when a seller is faced with a stack of offers that all look the same, it certainly doesn’t hurt to take measures to help yours stand out.

Here are a few things I’d suggest adding to an offer to help you stand out as a buyer:

Get prequalified. This is extremely important for both buyers and sellers. For buyers, getting prequalified for a mortgage loan lets you know upfront what you’re able to borrow, and therefore, afford when purchasing a Chicago home. For sellers, a prequalification ensures that a buyer has been financially vetted and won’t hold up the purchase process because of a financing contingency, etc.

Consider other favorable conditions: Think of what else you can add to your offer that would swing a buyer in your favor–perhaps an early closing date, accommodating the seller’s moving timeline, foregoing an inspection, or anything else that contributes to the buyer’s goals (which often is getting a deal done quickly).

Cash is king: Of course, an all-cash offer is always the most enticing offer in a bunch. This means a quick(er) closing time, no funding hold-ups, and eliminates delays because of unexpected situations, such as if the appraisal comes in lower than the offer.

Write a letter. Why not introduce yourself to a seller the old-fashioned way? I’ve seen many sellers who are heavily attached to their homes and want to “pass it down” to someone who will love it and care for it the same way they did. Maybe you’re looking for a new place to start your family, or a place to host your first Thanksgiving dinner, or are making your first big home purchase in the city. It certainly doesn’t hurt to put out a human-to-human appeal as to why you think you’re the just-right buyer for a home.

When in doubt, apply the golden rule: if you were selling, what would be important for you to get from a buyer?

If you’ve found yourself in the midst of a bidding war during your process of purchasing a Chicago home, give me a call. I’d love to work with you to find the right property and help navigate the offer process to get you in the home you truly want. Contact me at (312) 498-5080 or email me at ssalnick@dreamtown.com.

Rules for Navigating a Bidding War in Chicago’s Hot Real Estate Market

This summer, we’ve seen a swift change in the game when it comes to Chicago real estate. Sellers have gained the upper hand, with low home inventories, a lift in prices and increasing mortgage rates all leading droves of buyers to lock down a deal as soon as they can.

That unbalance between the number of potential buyers and potential homes to actually buy has put bidding wars in full effect in Chicago real estate and beyond. In June, nearly 70 percent of homes sold across the nation saw multiple offers. Pent-up demand from the last few years has created more buying competition than the market has seen in some time.

So how does a buyer come out on top in a bidding war? Offering the highest price may be the most obvious answer, but that doesn’t always mean the buyer is ending up with a good deal. From getting pre-qualified to acting quickly, there are some steps a buyer can take to ensure they find the home they want and end up making a deal that works on both ends.

An article in last week’s Wall St. Journal offered some great insight for buyers who find themselves in the midst of a bidding war. Here are a few of the top tips:

Know the neighborhood: Each month I recap the previous month’s luxury home sales for both single-family properties and Chicago condos. These are great to review in order to learn what transactions recently happened, giving you an idea of what kind of properties are selling, in what neighborhoods, with what features, and for what price points. Being familiar with a particular area and the price tags that come with it can certainly give you the knowledge you need to make the just-right offer.

Be realistic: Gone are the days of low-ball offers in hopes that a seller just wants to offload their property. While you want to get a good deal, chances are high that your offer won’t be the only one and a too-low bid will go right into the rejection pile. If you find a home you truly want, it’s often best to put your best offer out there, quickly.

Decide what you won’t pay. Because homes are moving quickly, buyers have to act fast, both in terms of making an offer and knowing when to move on to something else. While a bidding war can amp up the excitement of making a Chicago real estate purchase, it can be very easy to get carried away. As well as an offer price, buyers should know a maximum price they’d be willing to pay and walk away if bids surpass that number.

Be flexible: There’s more to a real estate offer than the purchase price, and this is another way to entice sellers with your offer. Be sure to add any additional factors to your offer that could entice a seller: quick closing dates, convenient moving arrangements, waiving contingencies, etc. Have your agent ask the seller what’s important to them and what else you can include in your offer.

Don’t wait. When the competition is stiff, there’s simple no room for dawdling. If you find something you like, make an offer. Now.

Offer to be a back up. If you find yourself losing out on a home you really wanted, offer to be a back-up, even if another bid has been accepted. Deals fall through, and it doesn’t hurt to keep your name in the game until all papers are signed and final.

In addition to properly navigating a bidding war, there’s another important angle to consider: connecting with the seller themselves. Check back for the next blog which will provide additional information for a more in-depth look at how reaching out to the folks behind the for-sale sign can make a big difference in a multiple-offer situation.

In the meantime, if you’re interested in learning more about what this whirlwind market might mean for your own purchase, give me a call at (312) 498-5080 or email me at ssalnick@dreamtown.com.