Even a pandemic failed to slow down the 2020 real estate market. Many major metro areas around the country have experienced low inventory and substantial demand. That means buyers who want to close a deal need to come prepared with their A-game when it comes to making an offer. What are some making-an-offer-on-a-house tips that you can follow?
Yes, writing a high offer will incentivize the seller, but money isn’t the only factor! You’ll want to be prepared, informed, unemotional, and strategic.
To help you set yourself up for success, read our primer with expert-backed tips for deciding on and presenting the strongest possible offer. (Does that mean a cash offer in your market? HomeLight Cash Offer might be able to help you out!)
Educate yourself about how offers work
First, buyers should enter into the process prepared with a fundamental understanding of how offers work in order to be as engaged and competitive as possible in the process.
Basic overview: You’ll work with your agent to deliver the offer to the seller’s agent on the forms used in your state. It’s a legally binding document once it’s signed by both you and the seller.
The seller will either accept your offer (in which case it becomes your purchase agreement), or will counter your offer (you can accept or counter again), or the seller could also flatly decline. If and when all parties do agree to the terms, your agent will draft a final offer, and all parties will sign it.
Set your budget limits
Knowing how to write a strong offer won’t do you much good if you don’t have the budget to cover it because you’ve been looking at homes way out of your price range.
The first step is to clarify your budget and establish your limit. Then, make sure you are only searching for, and writing offers for, homes you can truly afford.
Get preapproved for a mortgage
The importance of getting preapproved for a mortgage can’t be overstated if you want your offer to be taken seriously.
“Sellers do not really take anyone seriously unless they’re financially qualified to buy — period, end of story,” says Jase Norsworthy, a top-selling agent in Billings, Montana.
“So unless you can demonstrate to a seller when you submit an offer that you have financial qualification, then it’s an exercise in futility. I would encourage everyone before they step one foot into a property to have a preapproval lined up.”
Hire the right agent
Coming in with a competitive offer means arming yourself with the partnership of an agent who understands your situation and how to be competitive in the market.
“First of all, we have expertise in how to negotiate, we have expertise in what to expect,” Norsworthy explains.
“Buyer’s agents, we know the tricks. And a lot of times, we’re able to help people avoid the pitfalls that come with being hasty and going direct. Everybody deserves that representation, and in most situations, it doesn’t cost the buyer a penny because the seller is paying the commission.”
Decide where you can be flexible
Your offer will be stronger if you build in some wiggle room relating to factors that might seriously entice the seller to pick you:
- Can you offer rent-back?
- A bigger down payment?
- No sales contingency? Are you a first-time homebuyer, or have you already sold your home? Make sure your agent stresses that your offer doesn’t contain a sales contingency.
Determine where you feel comfortable bending and where you need to stand firm.
If you want to make a stronger offer, consider working with a program like HomeLight Cash Offer, which will extend a cash offer on your behalf to the seller, potentially closing in just eight days. When you need to find an area where you can be a little bit more flexible, this is a great opportunity!
Be ready to make a move
It’s one thing to browse real estate for curiosity or to educate yourself for when the time is right. But if you’re at the stage when you do want to buy a house, and you’re financially qualified to do so, be ready to act swiftly and seriously.
When you find a house that’s a fit for you, don’t hesitate to make a decisive, competitive offer so you don’t miss out. Other buyers probably feel the same way!
Figure out a fair price
Maybe the fair price for the home you have in mind is right at the list price… or perhaps it’s a little over, or a little under. You don’t want to go too low with your offer and miss out on a potential deal, but you clearly don’t want to overpay either. You have to figure out just the right price to come in with.
And this is one place where your buyer’s agent can really help you out.
“I’ll know pretty quickly if that house is overpriced or if it’s a deal,” Norsworthy says. “I can walk in and very quickly tell if there’s going to be a lot of deferred maintenance that’s going to have to be addressed, and how that might affect the buyer in the way they structure the offer.”
Assess what the seller wants
Price is important, of course, but depending on the seller’s situation, there are probably other ways you can sweeten your offer, too. So try to figure out as much as you can about what the seller wants, and write an offer that includes these important details that could sway the decision in your favor.
Do some digging on the house
Are you interested in a property that has been on the market for some time? If so, why is it still sitting? Were any other offers made and withdrawn?
Knowledge is power; collecting this information can help you make the best possible offer from an educated position.
Consider an escalation clause
In a hot seller’s market where bidding wars frequently happen, buyers can consider escalation clauses. This is an addendum to an offer contract that sets conditions for escalating the offer price automatically if the seller gets a better offer, up to a predetermined limit. This reduces the need for so much back-and-forth between buyer and agent, which might cause the buyer to miss out on a house they love based simply on a communication lag time.
Try to leave emotion out of it
Even if you really want this house, you do not want to overpay for it — and that can happen when emotions run hot, especially in a highly competitive situation. To the extent you can keep a cool head, you will likely get a better deal. (Yes, this is much easier said than done. )
“It’s really hard because buyers are oftentimes spending the most amount of money they ever spent — and maybe ever will spend — on the purchase of a home. So just by that sheer fact, it’s always emotional,” Norsworthy says.
“What I try to do is encourage the buyers to remain pragmatic. And I often say to them: ‘we’re going to do our best; our goal is to buy the property of your dreams, but for the best deal that we can get it for,’ and have them not hang all of their hope on just a single property. If it doesn’t come together, there are other fish in the sea.”
Determine how much earnest money to offer
An earnest money deposit (also called a “good faith deposit”) is money that accompanies your offer and communicates your seriousness to the seller.
The customary amount to put down as an earnest money deposit will vary based on your market. In some markets, the amount could be $500 to $1,000, but it generally averages between 1% and 3% of the purchase price.
If you really want your offer to be taken seriously, offering a higher earnest money deposit is an option to show you mean business. In highly competitive markets, deposits as high as 10% could be offered.
But before you make a large earnest money deposit, remember that if you back out of the deal for a reason not covered in your contract, or if something goes wrong that is not specifically provided for as a contingency in the contract, you could lose that earnest money.
Talk to your agent to find the sweet spot of earnest money deposit that suits both your offer and the current market.
Outline your contingencies
The offer will include any contingencies — clauses that allow you to cancel the purchase agreement and get your earnest money deposit back, should certain conditions not be met. The most common contingencies include:
- A home inspection contingency to protect buyers’ interests.
- An appraisal contingency that allows you to get your earnest money back if the transaction has to be canceled because the appraisal doesn’t support the purchase price of the home.
- A financing or mortgage contingency, which states that the buyer can back out of the deal if they can’t obtain financing to complete the purchase.
- A home sale contingency, which allows the buyer to cancel their purchase and get their earnest money deposit back if their existing residence doesn’t sell in time.
Write your love letter, if you’re doing it
Some buyers like to write a personal letter to sellers to appeal to their emotions, and in some situations it might actually help. But if you choose to do this, be careful not to include identifying information in the letter. And be aware of other potential problems with this approach.
“In the state of Montana, it’s a violation of our ethics,” Norsworthy says. “That’s a brand new directive from our board of realty regulation. It’s considered manipulative, so they are not allowing people to do that.”
He adds, “People still do it. And because rates are so good right now, people are very aggressive, and our inventory is low. A lot of times there are multiple offers on a property, and people play on the emotions of the seller.”
(Norsworthy describes writing an offer for a client who wanted to buy the Billings house he grew up in — so there’s a compelling emotional story for the seller! While there was no “love letter,” the buyer’s agent communicated the message to the seller’s agent, and “it went a long way to getting our offer accepted very quickly.”)
Submit your offer
When you think it’s ready, have your agent submit and get ready to start the closing process when that solid offer is accepted. (Good luck!)
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