I’ve spent the last 2 weekends on the other side of the transaction – representing sellers. As an active buyer, you’ve seen and felt the high demand of today’s market.
Here’s what I learned representing sellers in this crazy market and how it might help you appeal to them:
Expect a Fast Timeline
In both cases we scheduled showings for Friday, Saturday and Sunday from 10am-4pm. By Monday we were reviewing offers to be accepted Tuesday morning. With multiple offers on each, there was no need to carry showings into the following weekend.
Don’t wait to make your offer. Some agents didn’t send an offer until late Monday. By then, we already had excellent offers that we were considering. Or even worse, I had some agents contact me on Tuesday asking if it’s too late – yes, it was too late.
Making a Competitive Offer
- Try to guess what everyone else is going to offer, then offer at least 10k more. Don’t come in low hoping for a counter offer. If you’re competing against a bunch of offers, it’s likely only the top few will make it to round two. Coming in with a very strong offer right off the bat makes the seller love you and feel more obligated to accept your offer. And if the offer is strong enough, they may not even counter the other offers.
- Escalation clauses aren’t as effective as they were a few months ago. A typical escalation clause would read: Purchase price to be $5000 above highest verified offer not to exceed $980k and it’s not offered until the counter stage. With so many buyers doing them now, they don’t really stand out as much. Here’s a couple better approaches.
- Set a base purchase price with an escalation clause in your initial offer. Ex. Purchase price to be $970k or $5000 above any verified offer over $970k.
- Or just offer your limit: Purchase price to be $980k (and leave off the escalation clause if $980k is your limit).
- Reduce your inspection time down to 7 or 10 days. The default in the contract is 17 days. It’s become customary for a maximum of 10 days. Just offer it upfront to show the seller you’re serious.
- Reduce or eliminate your loan contingency. The standard 21 days doesn’t cut it any more. Get a fully underwritten approval so you can reduce or eliminate your loan contingency with your offer. If you can’t remove it entirely, 10-12 days is a good number to shoot for.
- Consider waiving the appraisal contingency. To a seller, this is one of the surest ways to show you are all in.
Talk to your lender about removing your appraisal contingency. Banks will typically only loan 80% of the appraised value. For example, if you offer $1 million with 20% down ($800k loan) and the home appraises for $980k, the bank will only loan you $784k ($980 x 80%). You would have to have the $16k difference in order to buy the house. Your down payment just went up to 21.6%. If you’re putting more than 20% down, then it shouldn’t be an issue.
Offers that Stood Out
In one case we had 9 offers to go through. Yep, that’s right…9 offers in 3 days.
I can’t stress enough how important it is to stand out to a seller (and their agent) in this market. Eager buyers are becoming more and more creative with their offers.
Here are some things that stood out. I think we could use a combination of some of them when writing your next offer: We’ll determine which of these to use when we make an offer.
- For a house that you’re fairly sure will be in decent condition, add this to your offer: No Request for Repairs for any repairs/estimates of $5,000 or less. There’s a common misconception that a typical inspection reveals tens of thousands of dollars worth of immediate and necessary repairs. Unless the roof or A/C are shot, it’s typically closer to $500-$2500 worth of repairs. In this market, chances are a seller won’t contribute much anyway, so you might as well address it upfront to make the seller happy.
- Sweetening your offer. If it looks like the house is getting even more activity than expected and you’ve already submitted an offer, don’t be afraid to sweeten your offer. One buyer revised and resubmitted their offer before the sellers even had the chance to counter. It was apparent how much they wanted the house… guess who the sellers chose.
- Don’t ask the seller to pay for a home warranty. They only cost about $600-$1k, but for some reason, it makes sellers really happy if they’re not asked to buy one. You as a buyer are still welcome to buy one on your own if you’d like.
- Find out if the seller would like a rent back, then offer it for free or a low cost. If the seller is attempting to purchase a replacement property, they won’t be able to get an offer accepted until their current home closes escrow. They may need more time to close on a new house. Buyer flexibility is a key selling point right now.
It wasn’t just buyer strategies that stood out. I picked up some effective agent-to-agent techniques that I plan on incorporating to help make my buyers offers stand out.
I know this market is competitive. You either have, or likely will find yourself in a multiple offer scenario. But remember, two people got their new homes last weekend, and with borrowing some of these strategies, you will too.