You've prepared for this occasion for months or even years. House hunting had it's ups and downs... the house you loved... returned your purchase offer without a counter (smug). Nothing seemed to hit for weeks. You thought maybe it's better to just settle on something... anything.
But then, as if it were scripted – the home you can picture yourself in for decades, if not the rest of your life, just hit the market this morning.
It's time to make an offer that the sellers will accept NOW. Here are proven steps to crafting a successful bid:
Act Fast - Submit Your Real Estate Offer NOW
Show the sellers that you are SERIOUS. Don't wait. Take action. If you don't have time to walk through the house immediately, at least schedule the showing immediately. Tell your real estate agent to call and ask about the property:
- Are there special circumstances?
- Ask about the condition of the roof and HVAC.
- Request the list of disclosures.
- What is the preferred timeline for the sellers?
- Do the sellers have a preferred title company?
- Inform the listing agent that you scheduled a showing and are very excited for the walk-through.
The typical process of negotiating a real estate offer would answer these questions. Show the seller you are a serious probable purchaser. Display urgency and the willingness to act in a timely manner, and to work with the seller to build your offer.
If you are responding to a counter-offer, act within 4 hours.
Raise Your Purchase Price
If properties in the area are selling within 7 days, adjust your offer above asking price.
Look at the listing price as the opening bid in negotiations. Your market is fluid. Numerous buyers and sellers are vying for the opportunity to purchase. Consider the value of the property, and offer more than the ask price if feasible.
You should never overpay for a property. Use caution – only increase your offer if you perceive the listing price does not encompass the full property value.
A method to the madness
This may seem a little scary. Why would you ever want to pay $4 for a gallon of milk that costs $3? Well, if you loved that milk, and it were the last gallon for a while, why not pay a little extra for it? Years from now, you will thank yourself for kicking in a little extra money to secure the home you love.
In fact, this strategy is not as risky as it sounds. Your real estate purchase offer should be contingent upon financing. After successful negotiations, acceptance, and inspections, the appraisal will happen (this applies to purchasers who are using a mortgage to finance). With this strategy, the appraisal is the assurance you will not overpay for the property. If your accepted offer is above the value of the appraisal, your deal won't be financed.
At this point in time, it is back to the negotiating table. Three possibilities exist after the home you are purchasing fails the appraisal:
- The deal is squashed and both you and the seller walk.
- Both parties disagree with the accuracy of the appraisal and order a second one (most lenders require an additional $400-$600 for the cost of the second appraisal if necessary).
- The seller agrees that the value of the appraisal is accurate and accepts the occasion for you to re-submit a lower offer, matching the appraisal, thus sending the deal towards closing.
Earn Your Purchase Offer it's Respect
In the end, this strategy wins you the opportunity to close the deal in a fast-paced fluid market. When played out, the seller is more than likely to work with you (considering negotiations have gone well) to close the deal, as opposed to starting all over with new offers. Remember – sellers now have to consider, no matter how provocative future offers might be, lending banks will negate any overly-generous offers by mean of the appraisal process. And they probably have their best purchase offer in hand.
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Increase Your Earnest Down Payment
Earnest money down payment (EMD) is the amount of money you submit with the offer to show the seller you are serious. When transactions proceed through closing, this money becomes part of your down payment required by your mortgage program for the purchase of your home.
Effectively, you are taking money already committed to a mortgage down payment and using it to increase the acceptance probability of your offer. Why does this help? Because given everything else equal, wouldn't you choose a buyer with a $5,000 down payment over a buyer with a $1,000 down payment?
A reasonable negotiating strategy
Take caution and be reasonable. Do not use this strategy without contingencies. If you break the purchase agreement contract, you don't get your money back.
However, if your offer is contingent of a home inspection, and problems are brought to light during the inspection, you have the ability to back out due to unforeseen issues, and receive your EMD back. The home inspection contingency gives you this out when problems do arise during inspections.
Typically, EMD is about 1%-3% of the purchase price. Consider a 5% down payment.
Be Flexible About Taking Possession
You want to win this house, right? Well... don't be rude with a list of demands about how and when you want to receive the home. They haven't even accepted your offer. Don't make it hard for them to do so.
I would therefor make it clear in an initial real estate offer that you are happy and willing to go about this transaction at the pace most comfortable for the sellers. You can put this in words on your purchase agreement, and be sure to have your REALTOR convey this to the other party. Remember to put yourself in their shoes – wouldn't you choose the buyer most interested in satisfying your wants and needs?
Reduce Contingencies on Your Offer
A contingency is language in a real estate purchase agreement that cancels the described agreement with no penalties if a certain event were to happen, or a described stipulation not be met.
The most common contingency is the home inspection contingency. This gives you the opportunity to back out of the purchase agreement with your EMD payment back with no penalty if unforeseen problems arise with the structure during a home inspection. The buyers usually have a time limit of 10 days from offer acceptance to fulfill their home inspection obligation.
Do not omit a home inspection contingency clause in your next purchase agreement in the name of winning the deal! Some contingencies, like the home inspection, are universally recommended and almost always necessary for a financially sound lifetime investment.
With that said, some popular contingencies may be leveraged to win a purchase offer in a hot market.
Use a radon test to leverage your offer
If radon testing is popular in your region, and is further perpetuated by contingency terms in real estate deals, then you have the ability to make a more compelling offer than a competitor. Remove the radon contingency from your standardized purchase agreement. You take the responsibility to mitigate high radon levels if present, and in return, have a higher probability of offer acceptance than the next guy.
Make no mistake interpreting this proposed information. Radon is a poisonous gas. If radon is commonly present in your area, then testing is recommended. However, if high radon levels are present, then safe and proper mitigation service is widely available for $1500-$2500. Are you comfortable with risk/reward?
Buy the Home Warranty
A home warranty is sometimes purchased during the real estate transaction. Typically selling between $400-$600 per policy, the home warranty covers commonly arising issues associated with the home, typically not covered by homeowner's insurance.
This short-term policy (commonly 1-2 years) provides peace-of-mind to both parties that negotiations can focus on the real estate at hand without worry about immediate unforeseen maintenance/repair expenses. The seller benefits because they have peace-of-mind that the buyers will not come after them for these expenses – a home warranty will cover all common break-downs, including appliances.
An example would be a furnace. If the furnace breaks down due to old age, a homeowner's insurance policy would not cover it, though a home warranty would replace the furnace if necessary.
Include in your purchase agreement that you will pay for a home warranty policy. This shows the seller your seriousness in making this deal. It's comforting to work with another party willing to make your life easier! The seller will understand your good-faith effort and may consider your real estate purchase offer with more cadence.
Write a Letter to the Seller
For an analytical person like myself, the act of writing an emotional letter to the seller may not seem like a priority at first. I thought, “why would such a letter impact anyone making a logical decision like the sale of property?”
I came to find out the answer is because we are all humans. If you have a story to tell that would show the seller an emotional aptitude toward the home, by all means – write that story in the form of a letter and have your REALTOR forward it along with the purchase offer. In a lot of deals I have witnessed, these letters do impact the decisions made by selling parties.
Know When To Walk
The art of winning the deal only applies when you purchase at or below value. Anybody can win a purchase agreement by overpaying. The goal is to not overpay, and to win the deal.
Consequently, that means knowing when to walk away. Know when the opposing party shows no willingness to negotiate close to where you need to be. Your due diligence would require trying to work out a fair deal at least a couple times. If you perceive the chances that the seller come down to where you need be slim-to-none, then it's time to walk away from the bargaining table and find yourself another property to pursue.
Follow your intuition. Read the optimism level of your REALTOR, as they are the primary back-and-forth communicator between the parties. If the deal is going nowhere real fast, withdraw any pending offers, and move on.
Win Your Real Estate Offer
It's time to take the tactics you have gathered while house hunting and deploy an operation sure to win the spirits and preferences of the opposite negotiating party.
A bit of tactfulness along with a winning negotiating strategy will outperform other parties who have failed to prepare.
TIP: Do not stall. Make decisions to move forward with purchase offers as quick as possible after a showing. If you need a second showing to make your decision, at least have a verbal indication about a possible offer available to the selling party immediately following your visit.
For a preferred real estate agent in Greater Cleveland, contact Christine Stowell, REALTOR®, Keller Williams Greater Cleveland Southwest – 440-263-8630