Offers In a Sellers' Market

Does your offer say "WE WANT THIS HOUSE AND WE'RE MOTIVATED" or does it say "WE WILL RISK LOSING IT BECAUSE WE JUST WANT A DEAL"?

If You Want the House

The buyers who want the house realize that they need to speak in a way that the seller will listen.  The way you write your offer tells the listing agent and seller whether you are serious or not. If you are writing with terms that say “I'll risk losing” (see chart below), you may think you are negotiating, but you could just be writing on the hope that you will receive a counteroffer vs. writing for acceptance.  When you are writing with terms that say “I want the property” you have a higher chance at getting your offer accepted or getting a counter offer. In the case of "best and final", it's winner take all.  There really isn't a 2nd place unless you want to be in back-up position waiting for something to go wrong.

Remember, in a sellers’ market you may only get one chance.

Bear in mind that if you keep the appraisal contingency in place and it doesn’t appraise, the seller may or may not be willing to negotiate a lower sale price; at which point you may have the option to reduce your purchase price or cancel.

So, a couple tactics that have a high percentage of getting you the house when price is the main issue:

1)    Offer a price that you can reasonably guess will be higher than that of any other buyer/bidder.  If you win the bid, then you can rely on the appraiser to reign-in the price to a reasonable value. An experienced appraiser will be able to estimate the market value of the home.  To make the seller feel more comfortable about this, offer to pay 1-2% higher than the appraised value.  But, for this, you’ll need enough cash to pay for the difference between your purchase price and the appraised price.

2)    Use an escalation clause in your offer.  The clause basically says, “I’ll offer you [amount], but I’ll beat any other offer by [overbid], up to [max amount].  This can give you the advantage over the other buyers. This can be tricky, but we can work with you to do this if you want.

*FHA requires seller to pay for certain costs.  So, if you want the property, include those costs in the offer price and we'll explain it to the seller in the offer cover letter or email.

If You Want the Deal

The buyer who wants a deal in a seller's market can't be looking at the same house that buyers will bid up.  Willie Keeler, Hall of Fame baseball player, said "Hit 'em where they ain't".  "They" are the motivated buyers that want the house.  "Where they ain't" is right there when the home hits the market. You want a deal?  Make your offer within minutes of when the home hits the market, or better yet, immediately when the home that has sat 90 days on the market drops price into your zone.

Other places where buyers may not be looking (homes that are deals):

1) Homes that require significant repairs

2) Homes with structural or foundation problems

3) Short sales, probate, estate sales, ...; the more complex the better.  How about a short sale with 3 lenders, in probate, with a foundation problem?

4) Properties that have sat on the market for a long time.

5) Properties improperly priced or marketed.  Out of area realtors often make pricing mistakes.  But, if you see a $400,000 well kept property mispriced at $300,000, don't offer list price when you can make money on it with a $360,000 offer.  Another, less greedy buyer may offer $350,000.

6) Homes with a drastic drop in price - you'd better be there quick 'cause the seller just said he wants to sell it NOW!

7) If you don't win the initial bid, ask if the seller will put you in 1st back-up position.  If the winning buyer backs out (it happens), then your offer is accepted before anyone knows about the house.

To make money on a DEAL, you need to do your homework.  Primarily, know what the house is worth.  Know what it will take to fix it up.  Know how much the house will be worth after repairs and improvements.

Preparation

Step 1 - A Must have: Loan preapproval.  Once you have preapproval, keep your financial docs in scanned PDF format and be prepared to present them to the seller or the seller's preferred lender.  Some sellers, like BofA (REO properties), require their own processors to preapprove.

Have current (last 30 days) proof of funds (POF) with all buyers' names on all accounts.  Make sure you can withdraw your money in 2-3 days.  You'd be surprised at how many people screw this up.  Banks can have 5-7 day hold periods, even for cashier's checks.

Ask us to set you up with weekly email notifications for your areas of interest ... 3-6 months before you're ready to buy.  That way, when a deal comes up, you won't "hum 'n haw" while someone else beats you to the deal.  You'll know value and you'll act quickly.

When you're ready to buy, ask us to set you up with ASAP notifications, and be ready to drop everything to get an offer presented - if this is important to you.  We know your job is important, and so are the kids.  YOU need to weigh the possibility of making tens of thousands of dollars in negotiations against your other immediate priorities.  Just let us know BEFORE we get started how you want to approach this home-buying effort.

On Closing

Obviously, we will write a cover sheet and highlight the strengths of your offer. We may also include a statement of your superior motivation to help a listing agent and seller determine who is the most motivated. In nearly all cases, we'll need proof of funds (down payment and deposit) and Desktop Underwriting (DU - Fannie Mae loans) or lender preapproval.

Consider that, in a seller's market, these may be where you get value:

a) The deal may be in the interest rate.

b) The deal may be in the affordability factor.  It may be cheaper to buy than to rent.  

c) The deal may be in the income generation potential.  The list price may not mean anything.

d) You may have to buy at today's market price or more (not based on past 3-month, lower sales), in recognition of increased prices or anticipation of appreciation.  Remember, in a seller's market, 3-month old prices are now too low.  At 10+% price increases, a typical $400,000 home that sold 3 months ago is now worth $410,000 - $420,000, and by the time you close a short sale, it could be worth another $20,000 more.

e) Better use of the property.  If you take a 2-bedroom, 1-bath home and turn it into a 3+2, you may have added significant value.  Or maybe you build multiple units.  Or maybe change the zoning.

When dealing with competing buyers and trying to determine an offer price, consider a) how you would feel if I told you that you were outbid by $1,000, or alternatively, b) if I told you that you were the winning bidder.  Neither situation should make you regret your offer.  If you lose, "I should have bid another $2,000", or if you win, "Oh darn, I didn't want to pay that much" are two negative reactions that you probably don't want to haunt you.