How to Structure a Winning Offer
For the most part, when there's a larger pool of buyers then there are existing homes for sale, it's a seller's market. Statistically, it's a seller's market 70% of the time. Many sellers get excited and feel like they don't have to do as much to prep their house for sale. Buyers, on the other hand, have to cope with the 'emotional roller-coaster'. When you love a house and 17 other buyers want that same house, stress levels rise. You can already picture yourself living there, and the other buyers can as well. You MUST have it! But only one buyer/ set of buyers can have it. So how do you increase your odds? How far are you comfortable going to help ensure you get it?
Here's the quick summary. Read on to get the details.
- Cash Offer
- Pre-Approved rather than Pre-Qualified
- Appraisal;
-Waive the appraisal contingency altogether
-Offer Appraisal Gap Coverage
-See if the lender can put a rush on the appraisal
- Escalation Clause
- Increase the Earnest Money
- Set the closing date for when the seller wants it
- 2 - 5 day inspection period
- Inspection;
-Limit the inspection negotiations to health and safety issues
-Waive the ability to negotiate after inspection and only have the ability to terminate or proceed with the contract
-Waive the inspection contingency altogether, or to be able to terminate. (We strongly caution against this but it sure makes a powerful offer)
- Agree to a seller leaseback if that's what the sellers want
- Provide an 'offer package' to help you stand out
- Let your agent provide the listing agent with some beneficial background details about you. Love letters are no longer advisable due to the state making it clear that this is a form of discrimination and there can be severe consequences as a result.
- Have your lender contact the listing agent once the offer is submitted
- Let the listing agent know you're well aware of the 'emotional rollercoaster' and are fully prepared for it
- Your agent should offer to prepare and send documents via e-signature to the listing agent's clients, on the agent's behalf
- The sellers can leave any personal property/rubbish behind
- Pre-sign and submit all property disclosures
- State that the property is being purchased as-is
Have the right mindset. Know that there's a good chance that you won't get the property but do everything in your power to help ensure the best outcome. Once you tour the home and know that it's 'the one', do your best to prevent yourself from really envisioning all of the ways that you'll make it the perfect home. Try to prevent yourself from spending much of your time thinking about the property. Keep your mind occupied doing other things. Do as much of the following as you possibly can.
Offer to pay cash, if at all possible. Sellers like cash offers because:
- you're not required to get an appraisal (and therefore the appraisal contingency is typically waived).
- you don't have to go through all of the financing hoops that could prevent you from buying the property.
- you can close much earlier than someone obtaining financing, if the seller is interested in doing so.
Make sure you are pre-approved, not merely pre-qualified. The pre-approval process entails submitting a fair amount of financial paperwork, employment paperwork, and allowing the lender to pull your FICO scores. Once all of this has been reviewed and approved, you'll be pre-approved. Being pre-approved shows the seller that you've done as much as possible on the financing side and now all you need is a contract on a home- their home.
Appraisal- waive the appraisal contingency altogether (very appealing to the seller). This will certainly strengthen your offer considerably, however, it's something that we caution against. If you're obtaining financing, your downpayment percentage will be based on the appraised value, (if it comes in lower than the contract amount) or the contract amount (if it comes in higher than the contract amount). If you waive your appraisal contingency, the sellers will be happy because they will no longer be concerned about the property being appraised for less than the contract amount. You will be on the hook to come up with the additional cash if the property should appraise for less than the contract amount.
Appraisal- provide gap coverage (appealing to the seller). While not as strong as waiving the appraisal altogether, writing appraisal gap coverage into your offer will certainly strengthen it. This means that if the appraised value comes in below the contract price (there's a gap between the contract and the appraised value), you agree to cover up to a certain amount of that gap.
For example- let's say that you're under contract for $875,000 and the house appraises for $850,000. There's a $25,000 gap between the two and you're already planning to do a 20% downpayment ($175,000). You had written appraisal gap coverage into the contract stating that you'll pay up to $20,000 toward any gap. This means that you're going to need to come up with an additional $20,000 (in addition to your $175,000) so you'll now need to bring $195,000 to closing (plus your closing costs) and the seller will need to concede to taking $5,000 less. The price would be reduced to $870,000.
Anytime there are multiple offers and the offers are climbing a good bit over the list price, the seller wants to see what buyers are willing to either remove the appraisal contingency or provide appraisal gap coverage. This is because they want to ensure that they'll get as much money as possible in the end. Without the waiver or gap coverage, the appraisal could come back 2 - 3 weeks from now and be lower than the contract price, which would give you the ability to renegotiate with the seller to try and get down to the appraised value of the property, which is ideal for you, but not for the seller.
Expedite the appraisal timeframe. We can ask your lender to put a rush on the appraisal. This will typically add $100 - $150 but it will help shorten the period of time that the seller is nervous about any appraisal issues coming up. Money well spent.
Escalation Clause.
Increase your Earnest Money.
Close on the property whenever the sellers would like to close.
Offer a rent-back period for the sellers if they wish to stay in their property after closing.
-Even better is to let the sellers remain in the home for a specified period of time.
Expedite the Home Inspection.
'Offer Package' email. Let them know we're going to make sure it's a smooth transaction.
Have your lender contact the LA after the offer is submitted.
Offer to handle all e-signatures on behalf of the LA.
We get on the phone with the listing agent and work to build rapport as well as find out what matters most to the seller.
Love letter no longer allowed.
Explain to the LA that we've already had a conversation about the 'emotional roller-coaster' so you're less likely to terminate when you do go under contract.
Inspection is for health and safety.
Waive the inspection.
Waive the Loan contingency (Loan Termination Deadline).
Leave any personal property at the property, if the sellers wish.
All MLS uploads signed and submitted with the offer package.
With your permission, share any information about you with the LA that we think may prove useful.
We want the LA to be working with us to get your offer accepted.
You're buying the property as-is.
Which lender you select
The LA is the gate keeper.
Cover the cost of OEC.
Cover the Title Services fee.
#1 way to strengthen your offer: Through your agent asking the right questions, building rapport with the listing agent, and extracting vital information. This is one of the very best ways to write a highly competitive offer without going overboard if it isn't needed.
