In this competitive landscape you may be wondering how to write a winning offer? Or even, when making an offer on a property how do I make sure I don’t overpay? That may be the most difficult question in a bidding war climate. If you want to learn the secret of writing a detailed purchase offer that can be used to win a bidding war, here’s how…
The most important aspect in writing an offer is to never compete against your self. It’s your money and livelihood once the offer is accepted. Buyer’s remorse on a six-plus figure purchase is never a good thing. Stay within your means! You should have a clear defined budget going in. Ask yourself if this home is checking a lot of boxes for you, or are you compromising and falling into the hype of competition?
So now you have the home you want in front of you, how do you beat out the competition? The trick is to write an offer to your audience. Competing offers are not your audience, the seller is. Above all you are talking with the seller. The seller wants to sell and the buyer wants to buy. This is not a hostile takeover. This is a transaction between two parties. Negotiating is all about coming to terms, which involves some giving so that you can get. This occurs on both sides of the transaction. It’s good faith and it also shows the other side that you’re willing to work with them.
These are the 7 things to consider while writing an offer on a house you really really want!
1. Preparation
Be prepared before you even start to look at homes. Shopping for real estate has almost become a hobby for many Americans. When it’s time to get serious, be serious about your finances. Have a clear plan of what you have, what you’re qualified to purchase, and how much effort you put into being pre-qualified.
It doesn’t take much to get pre-qualified for a home loan. A soft credit check and answering a few questions will secure you a letter stating that you’re “pre-qualified”. What you really need is a pre-approval letter. This involves providing your lender with financial documentation and a full credit check review. Purchasing with cash? Guess what!?! You still need proof of funds. A little ditty letter from the institution holding the funds stating that Jack and Diane have $X amount in liquid assets to purchase a home will be needed to let the seller know you mean business. Taking these important steps provides a bit more peace of mind to the seller
2. Define the audience!
Who are you making the offer to, an owner-occupied property or an investor? Is the property vacant or occupied? Writing an offer to an investor is much different than writing an offer to the homeowner.
With an owner-occupant, it is much more personal than a bottom line investor. While you never want to write an offending offer, sometimes an investor has more reasons to negotiate. But it depends on the nature of why they are selling because that could be said for either circumstance — Your realtor should know what questions to ask to obtain this helpful information.
3. What’s your financial strength?
Remember that you have likely never met the seller, they don’t know you, your income, or how you save your money. If you’re borrowing money, the more you put towards a down payment the more consideration you’ll get by showing you’re financial strength to purchase. A higher down payment means less money will be required from the bank, which can be ideal if a bidding war is pushing the price above and beyond what it might appraise for.
4. Waive your contingencies
Having contingencies in the contract helps protect the buyer. A contingency is a specific part of the contract that must be met in order to close a deal on the property. If they’re not met, the buyer is allowed to back out without losing any money. However, if you really want the home and there are multiple offers — this is a tool that you can use to appeal more to the seller. You can waive the financial loan commitment, appraisal, or inspection contingency to alleviate some of the seller’s concerns when entering a contract.
**There are risks by waiving contingencies*** You lose room to negotiate on price or terms. Waiving negotiations in an inspection could put you on the hook for serious repairs if items come up in the inspection process. Waiving the appraisal will require you to accept the property at the contract price even if it doesn’t appraise at that price. A savvy Realtor can provide you with contract clauses and enough pertinent information for you to make an educated risk assessment if you do decide to waive one of these contingencies. You just need to be aware of the risks.
5. Don’t negotiate furniture.
Unless the seller has overtly expressed interest on items, you are making an opinion on the value of their personal item. You don’t know what they paid for it, or who gave it to them. Furniture can have sentimental value, like Uncle Benny’s table. Overall, the furniture is not worth losing the house. If your offer is accepted, a personal property addendum can be used to buy furniture from the seller.
6. Your offer price.
How you write your offer on a house is everything. It’s often times the first impression you give to the seller. The more competitive the market, the closer you will be to having to offer at list price, if not above the list price. Having an effective offer strategy is critical to not only be the wining bid, but to walk away with confidence if the seller selects another offer. Your agent should review this with you before placing an offer to make sure that you are putting your best foot forward.
7. Escalation Clause
An escalation clause is a moving offer price. Say you’re offering $400,000 on a property, but you put in a escalation clause that says that you will pay $2,000 more than any other bona fide competing offer up to $420,000. That’s an escalation clause. There are two important items to note about escalation clauses. One is that many sellers and seller’s agents don’t like them. If you’re willing to pay up to $420,000 for the home, they feel that you should simply offer $420,000. Second, if the home is listed for sale at $400,000 and you’re offering up to $420,000 your initial offer should be above the asking price. At the very least your offer should start at $405,000. By doing this you are properly conveying that you will pay more than what the seller is asking while not coming off as stingy or calculated.
The conclusion.
There are many factors involved, how bad you really want the home, the market competitiveness, the parties involved, and your entire offer strategy. Remember that the most important part is to not compete against your self. Buying property is a huge financial undertaking. Always purchase within your means! This should help get you started but if you would like more detail on how to write a winning offer then speak with me directly or feel free to download my buyer’s guide.