offer strategy

Sellers are looking for the best terms + price. And more than that, they are looking for certainty. So what are they looking for exactly? Let’s break it all down.

quick close

Sellers want to close ASAP. The sooner a buyer can close, the sooner the seller gets paid. They may need time to vacate the property, but the closing date and possession date are two separate things. The closing date is the date the deal is funded, and possession date is the date you have the legal right to occupy the property. They want that money honey!

ranking funding types

Cash - cash is queen! and comes with perks in the real estate world. First of all, cash can close in as little as 7 days. Secondly, and most importantly, a cash offer does not need to conform to the rules/regulations that loans do. In a financed deal, the transaction requires an appraisal, which is ordered by the lender. This appraiser will assess the value of the property to ensure you are paying a fair market value for the property. What happens if the appraisal comes in below our offer price? Someone has to cover the difference. This presents a hurdle for the seller and buyer to potentially overcome. Thus, waiving the appraisal makes for great reassurance for a seller. We’ll chat more about appraisal waiving and appraisal gap coverage in just a bit.
Conventional - Folks who have a credit score of 620+ may qualify for conventional financing. This is considered the most favorable loan type to sellers. Sellers get reassurance knowing the potential buyer of their home has a history of maintaining the score, may have a better income, and fewer debt issues, thus potentially giving them more peace of mind in ability to close as intended. Conventional loan paths can close in as little as 21 days.
FHA/VA - in most cases, these are viewed as the least preferable loan option to a seller.
FHA - Federal Housing Administration has minimum property standards that are more strict than conventional loans. AKA they may call out repairs on the property that need to be addressed prior to close, thus potentially holding up a deal. They take slightly longer to close, at best 25 days. FHA loans can be seen as less desirable to a seller, because of credit score concerns. Additionally, FHA appraisals stay with a property for 6 months. So, if a contract falls through and the next buyer is also FHA, they have to use the same appraisal value, which could be viewed as a downside to a seller. FHA loans require a minimum of 3.5% down and an upfront and ongoing mortgage insurance premium.
VA - Veterans Affairs loans are only available to active-duty military, veterans and their surviving spouses. Typically closes in 30 days. You can get a VA loan for no money down, but that may be seen as undesirable to a seller. There is no credit score requirement, but lenders prefer 620 or higher for VA loans.

appraisal gap coverage

If our offer price is $555,000 and an appraiser says the property value is less than our offer amount, let’s say $500K. That’s a $55K difference. In competitive situations, folks are waiving that difference, meaning they are willing and able to pay out of pocket the difference, no matter what that amount is. They’re saying, “Seller, I will guarantee you the full $555K no matter what the appraiser says and I’m willing to pay the money to make up any difference.” Another situation could be saying I can pay a portion of the difference, up to a certain amount. Keep it mind you would have to have additional funds separate from closing costs and down payment set aside to do this.

larger down payment

The more money you have down, the more strength you’re showing the seller. If a buyer presents their offer with a small down payment, it’s more likely that a buyer may not have funds to cover repairs and close, in the sellers eyes.

earnest money

The intention of earnest money is a gesture showing your eagerness and commitment to close to the seller. The higher the amount, the more desirable to the seller. Remember, earnest money counts towards your down payment. During the inspection contingency period, you can back out for any reason and get your earnest money refunded to you. To be competitive, you can make your earnest money non-refundable. If you back out for any reason at any time, the seller can keep your earnest money deposit. If this feels like too much risk for you, you can also make a portion of your earnest money non refundable to be competitive.

inspection timeline

The contract defaults to a 10 day inspection contingency period. During this period, its your responsibility to do your due diligence, ensuring this property is in acceptable condition for you to pursue the property. In competitive situations, folks shorten the inspection period. I’ve seen folks do as little as 5 day inspection periods. During this period, we typically hire inspectors to assess the property, receive reports, contact specialists for estimates on repairs, request credits/repairs and reach an agreement. You can also waive the inspection contingency period altogether. I do not recommend this! If you waive the inspection contingency period, you are unable back out of the deal for any reason related to the condition of the property. Additionally in this situation, you would be conducting inspections for informational purposes only, assuming any repairs and unknowns of the property.

repairs / credits / concessions

Strategy 1: Buying as is. We can say that we’re buying the property in as-is condition, excluding any health, safety, or structural concerns. This means that mold, a very common item that comes up in inspections, would be something we could ask for, even if it amounts to under $3K. This lets the seller know we’re focusing on the major concerns, however anything can be deemed structural health or safety, so we’re still covered.

Strategy 2: Minimize repairs. To be competitive, we can say that we’re only going to ask for repairs under a certain amount (ex: $5K). This is reassuring the seller that we will be easy to work with.

Strategy 3: No repairs. The highest price doesn’t always buy the haus. If one buyer says they’ll pay $1M for a property and we say we’ll do $990K and not ask for any repairs or concessions, its likely that they’ll go with our offer. Highest price isn’t always best. Sellers want a guarantee that they’ll net the most money out of the deal and is most likely to close. For example, a buyer who is offering the highest offer price, but is also asking for a new roof is not the highest and best offer. Sellers want to minimize the risk of additional costs and repairs to net the most profit possible. Additionally, if the buyer and seller can’t reach an agreement on repairs, the deal could be terminated.

Any time a buyer terminates an agreement, the seller likely will have to put the property back on the market. Something is back on market and then it sits. Why? Because the next buyer to come along assumes there is something wrong with the property. That’s why it is so advantageous for the buyer and seller to reach an agreement and close the first time. The second time around may never come or may come at a huge loss to the seller.

rent back

Some sellers may need additional time after closing to vacate the property, in this case offering them rent back is preferred. This legally allows the seller to occupy the property for up to 60 days after closing. Some sellers desire that flexibility, because they may need the funds from closing to purchase their next property. Maybe they require more time to move all of their belongings. Maybe they still need to find a haus and haven’t found the right one yet. There can be many reasons they would need additional time, so this is a great term you could potentially offer a seller. You can charge them a daily rate or offer them free rent back. Free rent back is most advantageous to them. Since you’ll get a least a full month before your first mortgage payment is due, this may come at no or little cost to you.

escalation clause

We may write that you’re willing to pay $X amount over the next highest offer, up to a certain amount. For example, we submit an offer for $500K and another buyer presents an offer for $510K. If we have an escalation clause that says were willing to pay $5K over the next highest offer up to $550K, this would allow us to secure the property while potentially not having to go up to $550K unnecessarily.

other terms to consider

Do you work on a vineyard? Maybe we throw in a couple cases of wine to sweeten the deal! I’ve seen folks get creative with this and you never know what that one thing could be to set your offer apart from the rest. Some sellers will allow for personal letters, some do not, so this is on a case by case basis.

deadlines / expirations

Giving the seller time to review your offer is important, usually between 24-28 hours. I know the urgency buyers feel to submit an offer on a haus they’ve fallen in love with. If it’s been sitting on the market for a couple of weeks, let’s get to submitting. If it’s brand new to market, we will wait on submitting. The first offer in sets a bar, for others and themselves to beat. Agents, such as myself, work diligently to understand where offers are and where I need to be to beat them out. My strategy is to let someone else submit the first offer. Once 1-2 offers are in, the listing agent will likely set an offer deadline. I’ll be communicating with the listing agent until the last minute to ensure we have done everything possible to beat the competition.

The offer deadline process is different with every agent. The important thing to remember is this is the time when they are planning to review with the seller. Agents, by law, have to present any and all offers to their clients.