Finding your dream home and preparing to make an offer is an exciting and stressful time. While it technically started with getting pre-approved for a mortgage and looking at houses, it often doesn’t feel official until your agent submits an offer letter.
An offer letter is your introduction to the seller. You want it to stand out and “wow” them. Standard offer letters contain four essential items:
- Fees and earnest money
Each presents you with an opportunity to appeal to the seller and write an offer that they love.
Losing out on a house that you’re head-over-heels in love with can be crushing, and sellers can be touchy and emotional when selling their home, so here’s how to make an offer on a house that they can’t refuse.
The price you’re willing to pay
When sitting down with your agent to write an offer on a house, you usually start with the amount you’re willing to pay.
Like it or not, this is what matters most to sellers, and negotiations usually start with the offer price. Jesse Zagorsky, a top-rated agent with 15 years of experience, believes that good agents “never tell their clients what to offer; instead, they educate them and allow them to come around to the price.”
If the home is already a good deal, don’t expect the sellers to budge much on price.
Haggling price in a buyer’s market
In a buyer’s market, where there are more houses on the market than qualified buyers to purchase them, you have a stronger negotiating position on price. Robert Andrews, an experienced agent in the Midwest, says, “you can come in with a lower offer and negotiate,” but he clarifies that, “we don’t ever want to come in with an insulting offer. If we insult them, they might not even counter.”
If the home has been sitting on the market for a while, or it has appraised for less than its list price on a previous sale, you also have more bargaining power. The seller might be getting anxious to sell, particularly if they have already made their own offer on another house or need to move by a specific date.
Does that work in a seller’s market?
In a seller’s market, where the number of qualified buyers exceeds the number of homes for sale, you’re in a weaker position. If it’s a desirable property in a great neighborhood, there’s a high probability you’ll end up in a multiple-offer situation. In those situations, Andrews tells his buyer that they might have to “go in high, and we may jump to that top dollar.”
If you can pay some or all in cash, it increases your odds of acceptance in both a buyer’s and a seller’s market.
Sellers want reassurances that the offer will close and that they’re not wasting their time on a deal that will fall through. Lenders prefer buyers with more cash to put into the sale as it reduces their risk, so you’re more likely to qualify for a mortgage. And if the seller values a faster or more certain closing date more than price, they might even take your offer over a higher-priced one with less cash.
Borrowers who are obtaining financing from some lending programs will also face restrictions that reduce their price flexibility. Many government lending programs for first-time buyers have income limits and price restrictions, as well as loan-to-value requirements for the mortgage. If you’re wondering how to make an offer on a house in that situation, work with an agent who knows the ins and outs of your financing program.
Other fees or deposits
Offering to handle closing costs or other fees for sellers can also increase your offer’s attractiveness. Buyers typically pay 2% to 5% of the full mortgage in closing costs, while sellers pay 6% to 10%, with the majority of the difference caused by agent commissions. Agent commissions average 6% nationwide, and if you can cover other closing costs for the seller, it could save them a lot of money.
Some lenders will let you roll closing costs into the loan; others require you to pay for them out-of-pocket. If your financial situation permits, offering to pay some of the seller’s closing costs could cause them to look at your offer more favorably than another buyer’s. Remember that it’s not just the money you pay them for the house, but the money you save them, too.
Earnest money, or your deposit on the house, can also help you stand out. Putting more into escrow indicates that you’re serious about buying the home, are financially stable, and your mortgage pre-approval is unlikely to fall through. This reassures the seller that they won’t be pulling their house off the market fruitlessly and wasting valuable time.
All offers contain contingencies, and they’re one area where you can really give yourself a competitive advantage. Common contingencies typically address the home inspection, financing, or the sale of the buyer’s current property. To find out what will appeal to the seller, Zagorsky recommends having your agent call their agent and ask, “Other than price, are there any other terms that are important to the seller?”
Chances are, the seller will want more from the deal than money, and your agent can write the contingencies in your offer to appeal to those desires. Suggesting a flexible close date will appeal to sellers who have yet to find a place to move. It takes the pressure off them to find a new home right away. Including a contingency clause related to selling your current home makes your offer less attractive than someone who doesn’t have to wait for their house to sell, so consider whether you can afford to pay two mortgages for a short time.
While Andrews advises that buyers never waive a home inspection, in a truly competitive seller’s market, you could write a contingency clause with either a flat “yes” or “no” after the inspection. In other words, you won’t request that the seller pay for any necessary; you’ll either proceed with the sale or walk away. To sellers, this means that they won’t have to scramble to find a contractor or pay to fix something for the deal to close.
In a buyer’s market, you can add more contingencies that protect and give you more wiggle room. In a seller’s market, you may have to pare contingencies down to the bare minimum, such as financing and a home inspection.
The timing of a sale might matter more to a seller than getting top dollar for their house. Sometimes sellers prioritize getting out of their home quickly over their bottom line.
If the seller is relocating to another city or state for a job, they might have a drop-dead date by which they need to be out of the house. The same is true if they have a closing date scheduled for their new home but need the funds from the sale of their current home to close. In that case, if the sale nets them enough to purchase their next home, they might care more about timing than the offer price.
Forging a personal connection with the seller
In a competitive market, Zagorsky recommends writing a cover letter. The letter should explain why you love the seller’s home and why you want to live there. It’s essential to run it by your agent, so you can avoid violating fair housing laws. These laws prohibit home sales based on race, sexual orientation, or other protected classes.
Executed well and under the direction of a qualified agent, however, they can help the seller forge an emotional connection with the buyers. One of Zagorsky’s clients connected so well with the seller, bonding over a shared school district and their kids, that the seller accepted an offer $40,000 less than another offer. He points out that this isn’t the norm, but a good cover letter rarely hurts.
The offer process
After you and your agent have nailed down the offer specifics, your agent will deliver the letter to the seller’s agent. It must be signed and in writing, as it’s a legally binding document.
The seller will either accept your offer, or negotiations will begin. Once you’ve mutually agreed upon all terms, your agent will draft a final offer letter, and all parties will sign. Then you move forward to the home inspection, appraisal, and finalizing your mortgage.
What happens if you give it your best, but don’t get the house? Zagorsky tells homebuyers to handle a rejection with “poise, dignity, and grace.” Sit down with your agent and discuss what didn’t go right, then strategize for the future.
It’s not uncommon to make many offers before one is accepted. Each will be slightly different, but if you’re working with a good agent eventually you’ll be moving into your new home.
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