Making an offer in today’s market isn’t easy. Homes are selling quick and above asking price. To get your offer accepted when you find THE ONE, buyers are having to get creative to make their offer stand out. Here are a few things to consider when making an offer:
1. Get pre-approved for a mortgage. This is a MUST in today’s market! A pre-approval verifies you can afford a home and shows sellers you’re serious about purchasing. It also shows that the deal likely won’t fall through. Many home sellers are requiring pre-approval letters to be submitted with offers. If you don’t have one, your offer may be put to the bottom of the pile. Don’t get just a pre-qualification letter either. A pre-qualification is an estimate on what you could possibly borrow, while a pre-approval letter confirms the amount you’ll be able to borrow based off of a lender’s evaluation of your credit score, assets and income. A pre-approval also gives you a head start on the mortgage application leading to a quicker close date.
2. In the case of a cash offer, include proof of funds with your offer. You’ve heard the expression “Cash is king,” but really it’s only king if you can show you have it. Paying cash may seem unnecessary since it’s always “cash” in the end to the seller, but letting a seller know that the sale is not contingent on receiving a loan approval may make you a more attractive buyer.
3. Make a respectable offer. Submitting a lowball offer usually backfires, especially in a seller’s market. Buying a home or property is not the same has haggling at a flea market. You do not want to insult a seller by your “opening bid.” A seller is under no obligation to counter your offer, and in a lowball situation, may just outright reject your offer. If you are going to offer below list price, you need to have some market data to back it up.
4. Consider Waiving Contingencies. There are 3 major contingencies in a purchase offer: financing, appraisal and inspection. It is likely that you cannot waive the financing contingency unless you have some serious cash on hand to back up your offer, but the other two may be something to consider. If you waive an appraisal contingency and the home appraises for less than your offer, you will be responsible for paying the difference out of pocket. To minimize this amount, an appraisal gap is something that can be done. Waiving inspections also pose a risk but it can be minimized by an as-is with due diligence opposed to as-is. Talk to your REALTOR® about these contingencies and discuss the pros and cons of waiving any contingency.
5. Add an escalation clause. An escalation clause says that you will outbid all other offers up to a maximum price. Keep in mind, while an escalation clause may make your offer more attractive, it also shows the seller exactly how much you’re willing to pay, and it does not account for other points of negotiation.
6. Seller concessions and personal property- don’t even think about it! In a hot seller’s market, there are others who are willing to make an offer without any requests for concessions. Those “clean” offers will definitely compare better to yours, even if you are offering more money. No home is perfect. If fixes are necessary and more than you can afford, it might be better to look for a different, lower priced home.
7. Put down a higher Earnest Money deposit. Your EM is proof that you are a serious buyer. On average, EM deposits range from 1-3% of the purchase price. If you put a larger amount down, it may show the sellers that you are willing to go the extra mile to close on this home. Although EM is held in Escrow and will later contribute to your down payment and closing costs, if you don’t move forward with the purchase, it could go to the sellers as compensation for time wasted. The higher you go on EM, the less likely you are to back out of the deal, which could be a big advantage.
8. Closing date and possession. Generally, the more flexible you are with the details of a transaction, the more likely it will close. A buyer who has to move may consider the closing date to be a critical issue, but flexible closing dates can remove the pressure for sellers and help a buyer’s offer seem more attractive.
9. Don’t be afraid to ask your REALTOR® to contact the seller’s agent. In a seller’s market, it is important to understand what is most important to the seller. Obviously, price will be an important factor, but there may be other things equally as important such as closing date or not having to make repairs. It never hurts to have your agent reach out to see if they can find out what is most important to the seller. Of course, the seller’s agent can only reveal what the seller’s want revealed but a phone call never is a bad idea if there is a possibly that it will help make your offer stronger.
10. Put your best foot forward. You may only get one shot so put your highest and best offer in the first time. Don’t make a low offer in the hopes that the seller will give you a counteroffer. If the seller has received multiple offers, the low offers are not even considered and put into the rejection pile. Do the math ahead of time and figure out the top dollar you are willing to pay. That is the offer that needs to be submitted.
Although the real estate market is red-hot for sellers right now, there is a lot you can do to make your offer stand out. Talk to your REALTOR® to see which strategies are right for you. After all, price is nice but it is not always the most important factor to a seller.
