Let’s be honest: Rejection stinks! Whether it’s from a significant other or the college entrance letter (you know, the thin envelope instead of the thick one), no one accepts rejection well, even when the matter is out of your control. Research shows rejection can be just as serious as physical pain.
Take the home-offer scenario, for example. In this seller-friendly market, sometimes dozens of buyers make bids on a single home. Only one can win. So, how does one get an offer accepted and avoid the potentially painful side-effect of rejection? Here are 11 thoughts, gathered from experienced real estate agents, and shared with you:
Financial backing – Before considering offers, buyers should speak with their lender to request a letter that states they are strong candidates for a mortgage loan to cover the cost of the home. This is not just any letter; it’s a “fully underwritten” letter. To receive such a letter, the lending company’s underwriter has already verified the buyer’s credit, income and assets (or “CIA”) to essentially guarantee the loan. This is quite different from a letter stating the buyer is “fully qualified” or “fully approved.” That only means the lender has completed a cursory check of the applicant’s information. The fully underwritten letter, coupled with a strong offer, is the best level of financial backing (other than an all-cash offer) that one can expect.
Earnestly speaking – To make a good first impression with the seller, buyers should offer a high earnest money deposit, say 7% or more. They are definitely being earnest with a strong deposit amount. Yes, buyers may lose up to 5% of that amount if they fail to perform their duties such as meet a deadline, but that’s one of the responsibilities of real estate pros – to track timelines and ensure buyers deliver everything on time. What do they say: Go big or go home?
Non-refundable fee – Some offers include a non-refundable fee to sellers just for accepting the buyer’s bid. This fee is separate from the earnest money deposit but applied to the purchase of the home. The difference is that the seller can receive the fee immediately through the closing agent (escrow) and not wait for closing. Most offers include language that would require sellers to return those funds should they either default, terminate the offer or cannot provide insurable title. The risk is that some sellers refuse to return the fee for non-performance, claiming they had spent the money or dispute the claim of default and taking the seller to court could be more costly than the fee itself.
Clean is best – Make the cleanest offer possible. That means limiting the number of contingencies included with the bid. Do buyers really need to include contingencies for home inspections and financing? (I tend to coach buyers to include them – to protect their best interests – but, honestly, that may hurt a buyer’s chances against other participants.) If buyers are okay with a higher level of risk and, in consultation with an attorney and/or financial advisor, bypass those contingencies to improve the chances of having a positive outcome. Failing that, at least shorten the period to achieve the contingency and give sellers comfort in a buyers’ willingness to move more quickly on closing the sale.
Inspections – Speaking of which, think about bypassing the inspection contingency if the seller has already provided an inspection report. There is far less risk to buying a home if it has already been inspected – even when the seller paid to have it conducted – or try to get one completed before submitting an offer.
Real vs. Personal – Some sellers don’t want the hassle of moving certain items, such as lawn equipment, outdoor furniture or the pile of lumber in the shed. Buyer brokers can ask the listing agent if the seller would prefer to receive a separate offer for items that would make life easier and possibly help position buyers ahead of the rest.
Personally speaking – “Love letters” are a controversial subject in our industry. Should buyers include them or not? I have heard stories how sellers agreed to work with buyers who wrote a compelling letter to explain their circumstances or to compliment the seller on their choice of interiors. They can help – or hurt. Some sellers apparently try to read between the lines in that letter for clues on the buyers’ background and use that against them (which is clearly against the spirit and letter of housing laws). Lawyers don’t want buyers to write the letters because of potential liability concerns, while many brokers feel it’s worth the risk if it’s beautifully written, upbeat and cordial.
Above and beyond – The old axiom applies here: Highest and best. Offers should be their best from the start and, in this competitive market, at or above the list price in most cases. That’s just how it is right now (except in certain pockets of Seattle). Buyers, in consultation with their real estate professional and lender, should develop a strategy – measure how desperate they want the home and show that intent with an offer that will wow(!) the seller.
Take the escalator – Offers can include an escalation addendum, which calls for incremental increases on a home offer up to a cap. In bidding wars, we see these so-called escalators quite often and they can lead to an accepted offer as much as $100,000 over the original sale price. Buyers should check with their loan officer before including the escalator to ensure they still qualify for the loan at higher amounts … and, more importantly, they are comfortable with the increased monthly payment.
Green is gold – In addition to the earnest money deposit just after mutual acceptance, buyers should consider making a strong down payment at the closing table. In other words, the less the buyer finances through a mortgage, typically the greater the chance of winning the bid. This signals a financially sound buyer is ready to purchase the home and provides greater surety to sellers. (Clearly, an all-cash offer is almost always best!)
Stop, Look & Listen – Tip No. 11 may ultimately put a buyer’s offer over the top. It calls upon the real estate professional to glean as much information from the listing agent, the listing documents and other inside sources to determine what are the most important imperatives from the seller to win their approval. What are sellers telling us about the closing date, the potential to move out quickly or slowly or even rent the property for a few weeks? These are all questions that should be asked by a Realtor® and factored into the offer. By addressing the sellers’ wishes – or concerns – may put a buyer in first place.
Buyers need to think how badly they want their offer accepted before taking the above advice. Are they truly willing to forgo the home inspection or allow sellers to rent the place when evictions are difficult to complete in a pandemic?
If buyers don’t mind the higher level of risk – and in consultation with an attorney, financial advisor and real estate pro – then sellers will take notice and the dream home may be within grasp.