You found a house you love and you want it! So you have your agent call the listing agent and see what’s happening with the house only to find out they have 3 offers already and they’re going to market the home through the weekend and make a decision on Monday. What a downer!
This is a common scenario, if you are bidding on a well-priced home in Denver right now you’re almost surely going to be competing with other offers. My advice? Focus on what you can control and that is making the best offer possible to give yourself the best chance to win the competition without over-paying for the home.
8 Ways to Make Your Offer Stand Out
Offer a Strong but Realistic Price. Obviously the seller is going to focus on the price you are willing to pay. So have your agent do their homework and provide you with a value range for the property. Forget listing price and focus on what the value range is. Then decide how much you’d hate to lose this home and let that guide how aggressive you want to be on your offer within that range. If you love it you can go a little over the value range but don’t go much more than that or you’re overpaying and you’d be better off losing out on this one and waiting for another one.
This is not a market where you can make a low offer then expect to be negotiated with by the seller. You need to put your best foot forward in your offer because low offers will be ignored, they won’t even be responded to by sellers. For example, let’s assume a home is listed for $500k and we know there are competing offers. I think the value range is $495k – $510k I’d suggest an offer of $505k if my clients really want the home. I’d also put in that contract an “escalation clause” that states the buyer will beat any other offer by $2k up to a max price of $515k. That is a good offer and because we really want it we’re willing to go a little over the current value range. We need to draw the line at $515k though to avoid over-paying. To help us get the offer we need to find ways beyond just a higher price that will be attractive to the seller. Those are discussed next. (Quick tip: Some buyers have lost several deals in a row and they’ve become emotional, willing to greatly overpay. If you come up against one these buyers don’t get caught up in the emotion, walk away and find a better deal)
Give the Seller their Preferred Timing. When does the seller want to close and when do they want to move out? If you can, structure your offer to perfectly fit their timing needs. If you can close when they want and then let them stay in the home 3 weeks while their new home is completed this could be the difference that gets you the deal! Be flexible here, it doesn’t cost you too much and can go a long way. As a listing agent I’m surprised when I get offers from agents that haven’t even taken the time to call and ask about the seller’s preferred timing. They are putting themselves at a huge disadvantage over the agent that does their homework and gives the seller the timing they want.
Present a Strong Pre-Approval Letter. This is where you need a strong pre-approval letter that states you’ve already been underwritten and your loan is fully approved other than the appraisal and title work. Having this pre-approval will set you apart from the less prepared buyers who merely have a pre-qualification. The more you show you are putting down on the home in cash the better. That is another item related to the loan that sellers will be analyzing.
Cover a Potential Appraisal Shortage. It’s not uncommon for appraisals to come in low these days, in fact I’d say one in four deals has a low appraisal recently. The potential for a low appraisal to blow up a deal scares the seller. So make it easy on them and if you’re willing to let them know that if the property appraises low you’ll still purchase the home at the contact price. If your agent did the value research for you you’ll have confidence that you’re not over-paying. To make this commitment though you need to have cash available because if the home appraises low the lender is going to lend you less money and you’ll need to pay the difference in cash. If you are concerned about stating you’ll purchase the home no matter what it appraises for you can include a clause that states you’ll pay a set amount over the appraised value if it appraises low. For example you could say you’ll pay $5k over the appraised value. By letting the seller know upfront how you’ll help in the situation of a low appraisal you’ll be easing their mind and you’ll be increasing your odds of getting the home compared to other buyers who may have neglected to discuss this appraisal issue. I can tell you as a listing agent I am highly focused on which buyers are willing to cover an appraisal shortage because it’s such a common occurrence.
Minimize, But Don’t Waive, Your Inspections. In today’s market where the seller has 4 offers you are not likely going to nit pick the seller at the inspection phase for small items like a scratched floor or a dirty carpet. So why not just put a clause in your offer that states you’ll still inspect the home but you won’t request any items that aren’t expenses more than $2,000 to fix. This will give the seller piece of mind that you are going to be easy to work with throughout the process. And it gives you peace of mind knowing that if you find something big, like a bad sewer line that could cost $8k to fix, you are still able to ask the seller to fix it for you during the inspection phase. Side note, I have seen some buyers fully waive inspections and I think that is a terrible idea and bad advice from their agent. No one expects you to fully waive your inspections and that’s just poor due diligence on a huge investment.
Inclusions/Exclusions. Does the seller want the curtains and the basement freezer? Let them have them! I’d structure my offer to let the seller keep whatever they want to keep. For example, if they want to keep the washer and dryer let them do so and just take that into account on your offer price. I think asking for things the seller wants to keep only puts you at a disadvantage compared to the other offers. It may seem small but this could make a difference.
Ask the Seller What Matters to Them. This is often overlooked but your agent should call the listing agent and simply ask what matters to the seller. It shows that you are easy to work with, that you are highly interested and that you are thoughtful.
Personal Letter to Seller. I don’t personally love the whole “let’s write a letter to the seller” trend in this hot market but I’ve seen it act as a tie-breaker in really close competitive situations. So for that reason I think it’s a good idea to write up a half page explaining why you love the home and why it would be meaningful for you to be able to buy the home. The best letters are simple and mention a few specifics about the property that the buyers love.
If you address all of these 8 items in your offer and you still lose you should have confidence that you gave it your all. Sometimes you’re up against an all cash offer or a buyer who is willing to overpay considerably. If that’s the case you don’t want to “win” that competition anyway because in the long haul that’s a poor investment.
Focus on what you can control and have peace of mind knowing you gave it your best shot. If you take care of the 8 items listed above you’ll probably end up getting the home!