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as a buyer in a multiple-offers situation

We are currently in one of the strongest sellers’ markets in ages and it’s tough to win a deal.  On average, there is a 6-month supply of houses on the market. As of December 2021, there’s about 2 months in the Savannah area, compared to 6 months nationally. There are a few reasons for this, one being so many homebuilders went bankrupt in 2008 that we haven’t been building enough houses for our growing population. But that’s not what I’m writing to you about right now. What I want to discuss is HOW to win in competitive markets like this one.

Many buyers tend to focus on price only, but there are so many other levers a buyer can pull to make their offer stand out without necessarily having the highest price in their offer. In any real estate transaction, there are dozens of variables that can make your offer either more or less competitive in the mind of the seller – and every seller is different and has different needs!

Let’s discuss each variable and discuss how we can use each one to make our offer stronger.

1. Price

Price is typically the most important thing in the mind of a seller. Your price must be competitive, but the price you offer doesn’t necessarily have to be the highest. Here’s the bottom line: if a seller lists a house for $400k, and you can prove that the house is objectively worth about $400k by looking at the comparable sales, then you will not win a bidding war if you toss in a low-ball offer. Yes, even if you are buying cash, have proof of funds, can close tomorrow, etc.

But what if a house is obviously listed too high? Say that house is only worth $300k? It’s not wrong to offer what you think it is worth, but unless a house has been on the market for a long time, it’s very rare for a seller to come that far off their asking price, even if there are no competing offers. That doesn’t mean you shouldn’t try! Just manage your expectations.  Remember, real estate is a very personal transaction for most people, and sometimes a person’s opinion of worth isn’t always tied to what the numbers say.  

What if a house is obviously listed for too low? Say that $400k house is worth $500k? Then you should offer what it is worth, especially if there are a lot of solid comps and you have a good amount of certainty that it is really worth that much more. Because if you can see that, so can the other bidders.  

2. Due Diligence/Inspection period

This is a great way to make your offer stand out and can really help you beat higher priced offers. 2 years ago, it used to be typical to get 14 days of due diligence to inspect a home. Now, I advise my clients to offer 7-10 days (or sometimes less if I can get one of my inspectors lined up on short notice). It’s not terribly uncommon to offer no due diligence period, but proceed with caution if you choose that route.

Side note: just because you don’t have a due diligence period doesn’t mean you can’t still do an inspection. You can, and you can terminate the transaction without fear of getting sued (at least in Georgia – not every state is this way.)  The only thing you will lose is your earnest money deposit, which we will discuss next!

3. Earnest Money

It is standard practice to offer an earnest money deposit equal to 1% of the purchase price. If you have the ability to do 2 or 3%, it will greatly increase your chances of winning. This deposit is applied to your down payment, is fully refundable during your due diligence period for any reason, and is refundable for certain circumstances after due diligence period that I will discuss later in this post. If the seller defaults on the contract (meaning they do not fulfill their obligations), then it is also refundable.

4. Option Payment

An option payment is a non-refundable payment that you make to the seller.  This money is non-refundable for any reason other than the default of the seller. Typically, I do not advise my clients to make an option payment, but if a listing has multiple offers, I sometimes advise my buyers to offer $250-750 as an option payment depending on the situation. Not many buyers are willing to offer up an option payment, so it could really help to prove to the seller that you are serious and do not intend to haggle with them over trivial issues that might come up in an inspection.

5. Loan related contingencies

It is standard to ask for a financing and appraisal contingency.  A financing contingency allows you to get your earnest money refunded if you get a loan denial, and the appraisal contingency allows you to get it refunded if the house doesn’t appraise for the purchase price.  

Typically, before the market went nuts, we would ask for a 21-day financing contingency and a 25-day appraisal. Now, I typically offer 18-day financing and 21-day appraisal.  We can sometimes shorten these periods if we know and trust the lender. A good lender will be able to tell you exactly how tight we can make these contingencies while still covering our bases. They should know how long appraisals are taking, and we can pay extra to rush the appraisal if needed.  

If you really want to win and think that your price might not be up to snuff, you can completely waive these contingencies. I’ve done it before, just know that your earnest money will not be protected. It’s a bit of a roll of the dice, but sometimes it may be worth it.  

6. Strength of loan pre-approval

The strongest pre-approval will always come from a respected local lender. Listing agents know who the good lenders are, and they like to work with lenders that they know and trust to do the job. A preapproval from a big national bank just does not carry the same weight as one from a good local lender.

Another way to make your offer really stand out is to get your loan underwritten before even putting in an offer. This means that the lender has already completely underwritten you as a buyer, which is a process that they typically only do once you have a property under contract.  Not all lenders are willing to do this and I don’t often advise clients to do it, but I have done it before and it does help. It also allows you to not even have a financing contingency and still feel confident.

7. Appraisal gap

Another good way to stand out without completely risking your deposit by waiving your appraisal contingency is to offer an appraisal gap. An appraisal gap basically says “if the appraisal comes in low, I promise to pay up to X amount of dollars to cover the difference. So if you offer $400k, and it appraises for $390k, and you make a promise to cover a difference up to $5k, you will be required to come out-of-pocket up to an extra $5k of the total $10k difference.  If the seller insists you cover the entire difference, then you can terminate and get your deposit back. If they offer to reduce the price by $5k, then you must do what you promised to do and come up with the other $5k, or you will lose your earnest money deposit.

8. Closing costs

You can ask the seller to cover some of your closing costs. Before the sellers’ market got hot, it was common for buyers to get the seller to pay a few thousand dollars in closing costs. It’s not very common anymore, and I do not recommend asking for the seller to pay any of these costs if you are in a competitive bidding situation. In the Hinesville market, it is still somewhat common, but less so. In 2019, a VA buyer could typically expect to get a seller to pay $4-7k in closing costs. Now less than $3k is more standard, if at all.

Typically you can expect to pay anywhere between $6-12k in closing costs, depending on your purchase price. The higher the purchase price, the higher the closing costs.

9. Cash is king

All this talk about loans leaves out the biggest winner – cash. If you offer cash with proof of funds up front and no appraisal contingency, that’s about as strong as it gets. Cash deals also allow us to close faster, which sellers generally like. The typical financed transaction can close no faster than 30 days, but a cash deal can close in as little as 10.  

10. Closing time frame and seller rent-backs

Speaking of a cash deal being able to close quickly, sometimes a seller would prefer that closing takes longer! Maybe they need time to find a new house, or want the profits of the sale to be in next year’s tax return. This is why it’s important for your agent to speak with the seller’s agent and ask them: “what does your seller need and want? What can my buyer put in their offer to make it stand out?” This is something all Trophy Point Realty agents are trained to do.

Cool story – recently, I had a buyer who kept striking out on offer after offer.  Finally, we found a great house and decided that this was going to be the one. I asked the listing agent what the seller needed, and she told me they needed to be able to stay in the house for a month or two after closing. You see, the seller needed to get that house off his credit report before he could get a loan to buy his next one, but in this market, it’s very difficult to get an offer accepted if it is contingent on the sale of another property. We told them “no problem, how does a full price offer with a 30-day seller rent-back after closing sound?”  We won the deal and everyone was happy, and we even did it without them calling for highest and best, saving my client money. Win-win!

Every property and every seller is different, and the strategy you and your agent will want to employ will be different every time.  At the end of the day, it is your money, and your future home.  I always recommend to my clients that they make an offer that they will be able to sleep at night whether they win or lose – there’s nothing worse than buyer’s remorse, except for the remorse of losing a home you really loved because you didn’t put your best foot forward when drafting your offer.

Written by: Pat Wilver

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