You know that pain of taking your buyer out all day and they find their perfect home, only to have them lose it to another offer? They are disappointed, you are stressed out, and you both have to begin the whole process all over again. This is a tough market for buyers! So here is a list of tricks and tips to make their offer stand out from the competition and get them that house.
Your Offer is Only as Strong as Your Weakest Contingency
An offer is made up of many moving parts. It is much more than just price. Imagine you had a full price offer with a home sale contingency and a cash offer 3% below ask. Which one would you take? I assume most of you would take the cash, but this illustrates the point that the contingency makes it weak and the price might not be able to overcome that. Even a full price offer can have a contingency that renders it undesirable. Let’s take a look at 8 factors that affect your offer.
This is the first thing anyone looks at in the offer, and with good reason, but be sure to look for hidden attacks on the price, such as seller assist or seller paying all of transfer tax, providing a home warranty, or including personal property that was not advertised with the property. This will lower the net to the seller and make your high price offer, not so high. Also, as the buyer, pay attention to the psychology of numbers. For example, an offer of $300,000 feels so much stronger than $299,000. When you have a choice, inch up a little to make your offer appear stronger. In this case, a little goes a long way.
If your buyer is flexible, before writing up the offer, simply ask the listing agent when the seller wants to close and do your best to make it happen. Not all sellers want to close ASAP. A simple phone call to the agent and willingness to accommodate can go a long way to make your offer attractive to the seller.
An Earnest Money Deposit is put down in good faith to show that the buyer is serious and plans to purchase the property. The deposit is only forfeited if the buyer defaults. So, if the deal closes, it goes toward the purchase price. It is held in escrow until termination or settlement. The more the buyer puts down, the more serious they seem; and the less risk the seller is taking that the buyer will default.
Consider this scenario: A buyer wished to purchase a bank owned property for $112,000 that was listed at $129,000. She was planning to pay cash and her only contingency was a home inspection. She made the offer of $112,000 and put up the entire amount as her EMD. The seller accepted the offer. It made sense for them to accept less than asking because the offer was so strong. Assuming the buyer didn’t terminate under the inspection contingency, the seller was guaranteed $112,000 whether the buyer closed or not. It wouldn’t surprise me if the seller was even hoping the buyer would default so they could keep the EMD and put it right back on the market again. How can you make your buyer’s EMD compensate for other factors in your offer?
Unlike an EMD, which is held in escrow, a Hard Money Deposit becomes operating funds for the seller. They get use of that money right away. It still goes toward the purchase price, but there is no chance of it being returned to the buyer. This tool can be used to make an otherwise non sale-able property close.
Think of the case where a seller offers a property that may need FHA required repairs in order to close, but seller does not have the funds to complete the repairs. The buyer puts down a hard deposit which the seller uses to complete repairs and allow the deal to close.
Or another scenario might be an investor who wants to buy a property but all of seller’s funds are tied up in the property. The Seller needs cash to put down on another property in order to move and be able to sell. A hard deposit could solve this and make the deal happen. There are risks to the buyer in using this tool, so be sure to check with your Broker as well as the lender to see if this will work in your situation. You may also want to advise your client to seek legal counsel.
Never advise a client to waive inspections. It is not in their best interest, and no deal is worth the risk. There are ways, however, to retain your buyer’s ability to inspect while remaining attractive to the seller.
Shortest contingency period you can manage
the shorter the contingency period, the less time the seller risks keeping his property off the market should the deal fall through. While writing up your offer, have the buyer contact his inspector and check availability. Pencil in an appointment and adjust your time period accordingly. Make sure to allow for time for the report to be delivered and the buyer to review before drafting their reply.
Get the inspection before making the offer
Here, the buyer simply gets the inspection prior to writing up the offer and then makes the offer based on the inspection’s findings. Essentially, it is an educated As-Is offer. The only risk the buyer takes is paying for an inspection without having the property under contract. The seller could literally sign another offer while the buyer is inspecting the property. Despite this risk, though, this can be a really attractive solution if the seller has objections about taking the property off the market to allow for an inspection contingency.
Use Option 2
The current inspection contingency allows the buyer to reply to the inspection by either (1) accepting the property (2) terminating the contract or (3) negotiating a credit or repairs. Using “Option 2” is a great solution for buyers who are prepared to do some repairs, but still want to get the property inspected. This option sets a dollar amount of repairs at which the buyer will still accept the property.
For example, the buyer is comfortable accepting the property with a roof leak they estimate at $5000 to repair. The inspection comes back and shows less than $5000 needed, the buyer has no option to terminate. If it comes back higher than $5000, the buyer can accept, terminate or negotiate. This option is no longer in the standard agreement of sale, so have an attorney draft it so you can use it as needed.
Clean and complete
Pay attention to the details. Make the offer accurate, organized, neat and complete. First impressions matter and a sloppy offer indicates a sloppy agent and buyer. It will make you appear weak or sloppy and inexperienced. It will tell the other agent that you are inferior and they will automatically feel an advantage over you. Some key points to pay attention to:
- Send over all of the necessary forms and documents in one email. It is sloppy and unprofessional to send multiple emails to the listing agent and require him to organize it for you. Make it easy for them to do business with you.
- Do not send over any unnecessary forms. It signals to the listing agent that you are either sloppy or lazy, or simply don’t know any better. None of these labels are good. An example from my market is the Consumer Notice. That is a document between the Buyer and Buyer’s Agent and does not involve the Seller.
- Get that offer in FAST! – I always tell my buyers that I want them to find the perfect home and I will never pressure them into buying a house. But when they find the house they want, I am going to push them into action because the house they are looking at today and thinking about until tomorrow could be the same house that someone looked at yesterday and is thinking about until today. Get them ready. Make sure they are pre-qualified and are comfortable with the neighborhood. Encourage them to put in an offer as soon as they know they want to purchase it. It is always better to be the only offer in and try to avoid a bidding war. Make sure you have a file started on them so you can write up the offer swiftly and accurately. Have back up in your office to help write it up if you are tied up with clients or closings. If you don’t have an assistant, find an agent in your office and make a pact to help each other out in a pinch. Not only will it help you close more deals, it gives a higher level of service to your clients.
Try to incorporate as many of these tips as you can the next time you are working with a buyer. Your time is valuable, so use it wisely by closing more deals. Give top notch service to your clients and they will be happy and refer you business.
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