What Makes a Good Offer?

They say money isn’t everything. At first glance, the offer with the most zeros behind it would easily be the first pick. With the climate in the real estate world today, bigger is better. It is the only way to go to have a leg in the game. There are a lot of moving parts in a solid offer. Today, let’s look at some of the different facets that make up a strong offer in this unprecedented seller’s market.

STRONG PRE-APPROVAL will be the first step before you consider making an offer, especially as a first-time homebuyer. Sellers will want to see proof of this before considering you offer. You will want to consult with a credible lender who specialized in mortgage finance. It is best to start this process prior to even beginning your search. It is advisable to talk to multiple lenders so you can compare and contrast interest rates, terms and special incentive programs they may offer. Being armed with a strong letter of pre-approval from your bank or mortgage company will help put your best foot forward when presenting your offer.
OFFER PRICE in today’s market comes down to survival of the fittest. Offers will typically be only accepted at asking price and often even over asking. With the scarcity of inventory and housing experts forecasting prices to still be rising into 2022, the days of “low ball offers” are long gone. Counter offers and back and forth negotiations while the listing is in its infancy are a relic of the past. Only the strong will survive.

Rock-bottom interest rates, a sustained, strong demand for homes and an ever-tightening supply has pushed prices to new heights. In recent stats from the National Association of Realtors published last month, listing prices increased more than 15% in the last year across the US. This disruption of balance continues to add fuel to the fire, placing unassuming buyers into bidding wars within the first days (if not HOURS) of the property hitting the market. Buyers today must go big or go home; That means their old home and unfortunately not their new one.

STRATEGY to outbid other competing offers can be a daunting task. If a buyer has done their homework on values with the guidance of their real estate agent, they won’t always be pleased with their findings. Historical home sale data doesn’t necessarily reflect what today’s buyer is willing to pay. I recently sold a home to a client last summer. In the course of only 4 months, she had a drastic change of plans occur and had to list the house she had just purchased. The first (and instantly accepted) offer was 5% more than she paid for it. This is a slice of life on the daily goings-on in real estate today. No one ever said it had to make sense. If you are confident that the offer you are about to present will be one of many the seller will be deciding against, an escalation clause is a smart tactic to put in place. Knowing what the absolute maximum amount the buyer is comfortable with and approved for would be the cap. The escalation clause allows the buyer to make an initial offer, exceed any competing offers and land at their maximum allowable offer price that they are approved for. Escalation clauses were certainly not a provision that agents used on the daily, whereas now they have become a part of everyday contract negotiations. Here is an example: using an escalation clause on a home listed for $225k, the agent could submit an offer at asking price that would increase in increments of $1k over any competing offers. There would be a maximum amount or “cap” in place of $230k, the most the clients are approved for. Savvy, right? This would be an example of a special provision to present within the offer that held some weight while at the same time, not coming in with guns blazing at the onset. An escalation clause can help the buyer have a competitive edge in the dog-eat-dog world of bidding wars.

INSPECTIONS are the right of every home buyer. However, one way to drastically increase your chances of winning in a multiple offer situation is to waive your right to an inspection. In my opinion, this is rarely advisable in any case. However, everyone is different and if the buyer has done due diligence in reviewing the seller’s disclosure of property condition, believes it to be accurate and feels the value of the property outweighs the risks, they may pursue this route. This is highly desirably to sellers as the weight of any repairs has now been lifted from their shoulders. Even an offer that comes in below asking that has chosen to waive inspections are generally given higher consideration. It eliminates any financial commitment to make repairs or offer closing costs in lieu of reparations. It streamlines the process as there is no inspection period (typically 7-10 days) or settlement period (typically 5-7 days). If the client is an investor who is accustomed to properties in need of some TLC, waiving the inspection is commonplace. A major caveat is that even if inspections have been waived, the appraiser can still potentially flag certain items that the seller will have to address to proceed with funding the loan and making it to the closing table.

CONCESSIONS such as closing costs and prepaids were traditionally a feasible request. A buyer who comes to the table with a large lump sum of money will graciously accept any financial help the seller is willing to assist with. This decreases the amount of cash the buyer must bring to closing. For instance, a home is listed for $200k. A buyer may ask the seller to contribute either a specified amount or ask for the maximum allowable for the loan product. On a conventional loan, there is a broad permissible range. On FHA loans, the maximum contribution is 6%. With both buyers and investors fighting for limited inventory like hungry vultures, asking for the seller to pay for any concessions is ill-advised.

CLOSING on time and with flexibility towards the sellers’ needs will reinforce strength in the offer itself. Many sellers are out of touch with market conditions. They may list their home for sale, whether for sale by owner or with an agent, and be surprised to have multiple offers coming in within hours of it being listed. The sellers may not have even found their new home yet so by adding a provision to accommodate any logistical needs they may have will certainly sweeten the deal.

There are several nuances in the purchase offer process and each holds its own weight. One seller may value the highest price offered as the most important factor, while another may be willing to accept less if other terms are more significant in their eyes. If Zillow invents some sort of clairvoyant crystal ball for real estate, please let me know. Until then, offers should be based on key facts, market knowledge, professional experience and most importantly, what means the most to the home buyer.

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