Despite the facts We are officially in recession, Much of the US housing market is still hot. Some are hotter than ever!
reason? A small number of properties are for sale, but many homebuyers are considering buying one. Historically low interest rates.. And more buyers mean more sellers are receiving multiple offers for their property.
There was a property for sale in my market in Grand Rapids, Michigan. It went public for $ 180,000 and received over 30 offers in two days, surpassing the asking price by $ 40,000. You’re crazy, right?
So how can you make an offer stand out and be accepted in multiple offer situations? Here are some tactics to make a competitive offer and win the bid war:
- Provide evaluation gap coverage
- Increase full-scale deposits
- Shorten the inspection period
- Cover your own closure costs
- Include escalation clause
- Provide occupancy
- Abandon commission
Let’s define and review these tactics in a little more detail so that you can use one (or a combination of multiple) when creating your next offer.
Related: 5 Signs You Should Not Buy That Home
Provide evaluation gap coverage
You may have to exceed the asking price to accept the offer. However, if the property is offered above the asking price, it may exceed the amount the bank values the home.
Here is an example. If the house is listed for $ 100,000, you will sign a $ 110K contract with this house, but the appraisal will only be done for $ 105K. In this scenario, you need to fork an additional $ 5K in cash to close the transaction, convince the seller to accept a new purchase price of $ 105K, or leave the transaction.
The seller is afraid of the latter option, so when you make an offer above the asking price, a guarantee that you are willing to come up with some money to cover the difference if the valuation is insufficient. I want to see
That’s what we call rating gap coverage. If the appraisal is lower than the agreed purchase price, it is insurance for the seller that you are willing to pay an additional amount that exceeds the appraisal value of the house.
To change the previous example, suppose the house is listed for $ 100,000, the valuation gap coverage is $ 1,000, and the house valuation is $ 105K. This will start the coverage of the valuation gap, generate $ 1,000 in cash and bring the new purchase price to $ 106,000.
If the seller is considering two equivalent offers, one offer has valuation gap coverage and the other does not, the seller uses the offer with valuation gap coverage.
In addition, in this scenario, I got a house for less than I originally planned to buy. Win-win!
Related: Psychology to make an offer
Increase full-scale deposits
A full-fledged deposit is used to indicate that the game has a skin when you offer to buy real estate. The amount of money you deposit as full-fledged money varies depending on the market, but it is usually 1 to 2% of the purchase price. However, 1-2% of them are not strict rules. You can increase your full-fledged deposits to 1-2% or more (probably 3% or more) to show that you really want a home. There are many more skins in the game.
If you currently need to cancel your contract due to inspection, funding, or other issues, your full deposit will be refunded. Full-scale deposits also come from the down payment, so it’s not just money you give.
Offers with more full-fledged deposits may lead to your offer being accepted more than any other offer.
Bonus tip: If you are really serious about the property, you can make your full-fledged deposit non-refundable. However, please continue with caution.
Shorten the inspection period
The inspection period is a period for qualified inspectors and contractors to walk around the house and make a detailed evaluation of structures and systems such as furnaces and ACs. This is often the time when a home is out of contract due to inadequate inspection.
If you want to shorten the inspection period, such as a 3-5 day inspection period compared to 10 days, the seller may accept your proposal more than others. They know that if something goes wrong from the inspection, they can return to the market sooner rather than later.
However, if you want to shorten the inspection period, make sure that the contractor and the inspector are lined up and ready to move for proper due diligence.
Bonus tip: Some serious and veteran investors abandon inspections of properties that are known to perform bowel rehab.
Cover your own closure costs
Many first-time homebuyers collect enough money together to come up with a down payment for their home. They are not enough to cover the cost of closing the lender and the prepaid cost of funding the escrow account. A way for real estate buyers to cover this cost is to ask the seller to cover a certain amount of the buyer’s closure costs.
This works well in the buyer’s market, but in the hot-selling market, if you offer $ 100,000 and demand $ 5,000 for the closing cost covered by the seller, the offer to the seller is basically $ 95,000. .. If another buyer comes in and offers $ 100,000 without the closing costs covered by the seller, you will lose that bid!
When writing an offer in a highly competitive market, do your best to cover your closing costs.
Include escalation clause
Escalation clauses can be a very powerful tool in making property offers. The escalation clause generally states that up to a certain purchase price, the seller’s other offers are $ 1,000 higher.
The following is an example of an offer with an escalation clause. Escalation of $ 100,000, up to $ 115K. If the seller has another offer of $ 110K, the escalation clause of your offer will be enforced and you will be over $ 1,000 over the other offers and the purchase price will be $ 111K.
In this scenario, I saved $ 4,000 and got a house. If you have a total of 2-5 offers, the escalation clause is a great tool to use.
However, if there are many offers in a property, the escalation clause can confuse and complicate the offer for the seller. It may move to the bottom of the pile. If you know that you are offering at a property that has a lot of offers, your best bet is to send a clean and simple offer at your best and best price. The easier it is to understand an offer and compare it to other offers in the mix, the more likely it is that the offer will be considered and accepted.
This is very simple. After the seller closes the house, if you need time to pack up your luggage and move or buy another house, give it to them. In many cases, the seller may require 10 or 60 days or more to line up the ducks and move them from the property. If you give the seller the required occupancy after closing and another buyer does not provide the occupancy, your offer is likely to be accepted.
In addition, in many cases, depending on the length of residence required by the seller, you can collect rent from the seller or charge for the number of days you have stayed at home beyond the agreed period of residence. boom! Now you have a short-term tenant while looking for another long-term tenant. Sounds like a big win to me!
This tip is intended for all real estate buyers who also have a real estate license. In a normal transaction, the seller pays a percentage of the purchase price as a fee to use the agent, and the buyer’s agent and the sales agent divide the fee into 50/50. As an example, suppose a seller sells his home for $ 100,000. Pays the agent a 6% fee, or $ 6,000 ($ 3,000 per agent).
As a real estate agent representing you in a purchase scenario, you can waive half of your fees. This means that the seller only has to pay $ 3,000 to the seller’s agent. This has more money in the seller’s pocket and makes your offer very powerful!
I used this tactic in my last home I bought and defeated 5 or more offers! My purchase price was $ 225K, but my offer looked like $ 231,750 because waiving the purchaser fee right of $ 6,750 saves $ 6,750 on the fees the seller has to pay. .. My offer was more competitive than an offer with a purchase price of $ 6,000 or more.
Abandoning commissions is a very powerful tool in the toolbox as an agent.
Last Bonus Tip: Find an experienced realtor like me who knows all of these different tactics and has the experience of writing them in your offer!
Hope you enjoyed this article and learned some new tricks to use when writing your next offer. And don’t forget to use multiple tactics whenever it makes sense.
Looking for good luck and happy real estate!
question? comment? Any other advice?
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