What Terms Make a Great Offer? 4 Tips to Appeal to a Home Seller.
Written by Wena Roeloffze, REALTOR and Lifestyle Expert. Owner of Realty Club 74, brokered by Coldwell Banker Realty.
About two years ago, there was a home seller’s feeding frenzy in the real estate market. Homes sold for way above asking prices and lots of contingencies were waived to be able to compete among 20-50 offers on ONE home. It was a bizarre and totally crazy time for home buyers and agents.
When it ended finally, it left a lot of buyers frustrated, exhausted and in some cases, disillusioned about their purchases. Agents were going through some awful times too, because there was such an emphasis on coming up with creative ways to make your buyers win. But to what end? I actually feel relieved that my buyers were not successful, that they did not overpay for homes and that they did not lose sight of doing their due diligence in asking for a home inspection. Yes, we felt frustrated, but in the end, the bigger vision prevailed and they all ended up in great homes.
We might be out of that craziness, but there will always be sellers who would want the non-refundable Earnest Money, the waiver of a Home Inspection and Appraisal and the free post-closing occupancy without penalties. There will always be the sellers who think their property is far more special and deserve a higher offer price. Where does this leave prospecting home buyers and what will constitute a great offer? Here are my tips for creating a rock-solid offer that would appeal to a seller:
Including a Pre-Approval letter from a reputable lender, or proof of funds with your offer, assures the seller that you have already taken steps to secure financing and can afford the property. More than just having the lender letter, make sure that you are working with a local lender who can pre-underwrite your loan and is available after hours for texting, calling or sending extra information before your offer is drafted. This may seem like overkill, but establishing a rock-solid communication and expectancy relationship with your lender is crucial when competing with other offers. Not all lenders are created equal and real estate agents know who are on the naughty list!
The financing commitment contingency is usually the last contingency to be ticked off the list and also the most important in many ways. Any changes to your expenses or employment can render your whole offer useless and create a lot of stress to you, the lender, your agent and the seller. Take enough time to apply at several lenders within 45 days to establish your full financial outlook, review your future repayment program and how your lender relates to your requirements. Realty Club 74 will introduce you to several lenders we worked with to ensure a smooth and easy transaction before any showings are taking place. It allows you time to crunch your numbers and get acquainted with the process and how your financial future will be impacted. You are the team leader - choose your team wisely.
Offering a substantial Earnest Money deposit demonstrates a buyer's commitment and financial capability, signaling to the seller that you are serious about the transaction. While Earnest Money is definitely not a make or break term, it definitely creates a positive scenario about your financial ability and level of commitment. It replaces the age-old handshake and makes the offer tangible, while you and the seller are not in physical contact with one another.
While a lot of people think that Earnest Money is old-fashioned and should be replaced with something else or completely abandoned, it is still very much written into the Offer to Purchase and remains to play a vital role in setting up expectations when it comes to that first deadline to be reached. After acceptance, all these dates and deadlines kick in and the clock starts. Delivering that first EM check or electronic payment before the deadline, sets the tone for the rest of the transaction. Think of Earnest Money as part of your Down Payment and sending a message to the seller about your intentions. Realty Club 74 always hand-deliver checks for instant receipts if no electronic payment is possible.
Offering a Closing Timeline that is beneficial for you and the seller. Not all quick closings are preferable to sellers and it is often attractive to sellers to have an extended closing timeline. Realty Club 74 always try to find what would be acceptable to the sellers and make sure that is in coherence with your expected timeline. A quick closing timeline is beneficial for some sellers because it reduces the time their property is on the market, it assures them of your financial ability and the type of lender you are working with, and also will provide them with a fast turn-around for the profit from the transaction.
An extended closing timeline can have the ability for the sellers to find another place to live or have more time to move out. There are also post-occupancy agreements that could be drafted to allow for sellers to remain in your home for a certain period of time after closing. Note that this is not the same as a leased property. Make sure your proposed closing day is a win-win for all parties concerned.
While this is the most controversial of all, a Clean Offer with minimal contingencies can make the deal more appealing. A “clean offer” can have many definitions, so here are some of my professional opinions. This can be as simple as offering your highest price possible that won’t make you toss and turn at night, instead of using an escalation clause to “play it safe”. Escalation clauses can be tricky when dealing with multiple offers and the listing agent may have several to explain to the seller, which can be confusing and exhausting. Offer the one price your gut tells you, to ease the burden of the presenting agent.
Waiving a home inspection is not necessarily a good thing, unless you are a trained contractor or a handy man/woman with the skill of observing building defects. But consider a 2 bedroom condominium without a basement in a good condition. Not saying you have to waive the inspection, but consider having a home warranty and/or insurance in place to cover the costs of unexpected repairs for appliances or natural disasters. If you are planning to purchase the property using cash funds, consider waiving an appraisal IF the comparable properties sold shows that your offer price is in line. Realty Club 74 is diligent in doing the research to make sure that you will not overpay or lose money if you need to sell in a down market.
These are by no means the only way your offer can look “clean”, and each transaction will have to be evaluated in it’s own merits to determine the best way to structure an offer, and show the seller that you are not likely to back out of the agreement. Prepare yourself for the process, by determining your expectations of the property and communicating that with your real estate agent and lender. The biggest fear of any seller is that you will back out of the offer. If you cover that aspect and is well prepared, this will be a great offer.
In conclusion, the above 4 tips are by no means the only terms to consider to make a great offer. It is just to give you an overview of the most talked-about terms we see in the real estate market. This blog is not comprehensive and as a prospective home buyer, we urge you to do your due diligence when considering owning property.
We prefer in-person consultations with local home buyers and virtual consultations with out-of-state or out-of-country buyers. Our process is transparent and we have the resources to assist you in the process of becoming a proud home owner. If you have any comments or questions, feel free to complete the form below.