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How to Make Your Offer More Competitive

To say we’re in a “sellers’ market” is an understatement. The seller pretty much holds all the cards these days. So when a seller is looking at your offer next to five or more others, how are you going to stand out?

If making your offer all-cash and closing in 10 days isn’t on the table, here are a few other things you can do:

1.) Price

Let’s not skip over the biggest factor in your offer: How much are you willing to pay?

As of writing (May 2, 2022), here in SLO County, the list price is treated as the ‘opening bid’ rather than the ‘sticker price’ in most cases. Around 70 percent of listings sell over list. For the month of April, the median sale price was three percent over the list price. It wasn’t always that way here, but that’s the market today.

How much do you need to go over the list price? Don’t just assume three percent higher. Your agent needs to help you with this. Some price categories and some towns see an average selling price 10 percent over the list price. Your agent should provide you with some comparable sales in the neighborhood and advise you on what the house is worth.

Please keep in mind that lately home prices have accelerated so quickly that you may need to tack on a bit more to what the comparable sales might indicate the home is worth, since they sold earlier in the year. Lean on your agent here.

2.) Financing

It matters how you pay, too.

Depending on the type of loan you’re acquiring, there could be more hoops to get through, which might have an impact on the attractiveness of your offer. Certain government loan programs (e.g. FHA, USDA, VA) have added layers of requirements for borrowers and the property to meet.

Now that’s not necessarily something you can change, but keep in mind that it may be something you’ll have to make up for, especially if you’re competing against another buyer with a simpler conventional loan, or an all-cash offer.

At minimum here, if you can’t control how you’re paying, you can control who you’re using. Lenders play a really important role in your home purchase. They need to be aware of local rules and customs; they need to be good communicators; and they need to be constantly pushing things forward.

Loan officers located in your local community have their reputation at stake, more so than one located in another part of the state or country. Plus, if the listing agent has worked with your lender in the past (and they did a good job), it may add strength to your offer.

3.) Time Periods and Contingencies

The next thing the listing agent will probably look at is your escrow length. One reason all-cash offers are enticing is that they can close very quickly. Lenders however need time to get you to full loan approval. You’ll need to rely on your lender here to see how quick of an escrow you can do.

Not all sellers want a super quick escrow though. So if you have flexibility, try to tailor your escrow length to the seller’s needs.

There are other time periods to think about in making a stronger offer.

The Residential Purchase Agreement automatically includes three types of contingencies, each with their own contingency periods. One contingency for an appraisal, another contingency for loan approval, and finally an investigation contingency (which is broken into smaller sub-contingencies).

Each contingency is a cancellation right for the buyer, so naturally these are points of anxiety for sellers. If you can whittle the timeframe down for these contingencies or if you are in a position to remove them right off the bat, then it will put you in a much more attractive position from the seller’s point of view.

[Please note: consult with your agent and/or broker prior to removing contingencies with an offer! Contingencies are built-in protections for buyers, so they need to be fully evaluated and discussed before being removed with an offer.]

A couple additional comments… due to the nature of quickly rising home prices, appraisals have become an item of concern. If you have an appraisal contingency in place, the seller may counter you, requesting to remove it from your offer. There are ways to resolve a low appraisal if that happens—consult with your agent and lender about this scenario.

Secondly, often, the investigation contingency is the most uncomfortable contingency for a seller. “What kind of skeletons are the buyers going to find in the closet about my home??” If you are in a position to keep this contingency short—while accomplishing all your due diligence on the home—you’ll help ease the seller’s discomfort.

4.) Seller Rent-back

Not in every case, but in some, the seller may want extra time in their home after close of escrow, either to help with the move or perhaps because they’re still shopping for their replacement property.

If that’s the case, you may want to offer a rent-back. Traditionally, you might offer a rent-back at the daily cost of your mortgage (PITI), but in our current market, sellers are being offered free rent-backs by buyers trying to make their offers more attractive.

Just keep in mind, in all the financial aspects of your offer, we’re evaluating what the “net effect” is. If you’re offering a really high price, then maybe it’s okay to charge for the rent-back. If you’re offer isn’t as strong in terms of offer price, then maybe consider a cheap or free rent-back.

Be careful to review what the terms are of the rent-back you’re offering. Additionally keep in mind that lenders typically require that their borrowers take possession of their new homes within 60 days from the close date.

5.) Buyer Love Letters are a No-no.

It used to be the case that buyers could include a letter to the sellers, describing who they are and why the love the home in effort to sell themselves to the homeseller.

In the last couple years though, that practice has come under scrutiny due to concerns around buyers being discriminated against based on protected classes (race, religion, sex, marital status, etc.).

Whether or not that is by-and-large happening, the National Association of REALTORS® (NAR) now advises its members to discourage buyers from writing these letters and sellers from reviewing them.

6.) Sell them on your Motivation

Last thing I’ll say is that in this market, buyers can easily get cold feet when they’re bidding up to uncomfortably high levels. Think through what you’re offering. Think through the home you’re buying. In this market, homes are selling fast, but do yourself a favor and sleep on it.

If your agent can tell the listing agent that you’ve thoroughly thought through the home, that you’re very motivated and committed to the purchase, it can move the needle in your favor.

We agents all have stories of a “magical all-cash offer” swooping in out of nowhere and crushing the competition, only to have them cancel the purchase agreement a short time later and disappear entirely. So prove to the seller that you’re excited about the home and that you’re not going anywhere.

While this is a hot market and people are paying through the nose to secure a home, it’s not always that the top offer amount wins. These other aspects all factor into the strength of your offer. So don’t just think bottom-line when you’re crafting your offer.

Good luck out there!

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