So you’re telling me there’s a chance??? No, unfortunately, in this hot real estate market you cannot simply submit an offer just to submit an offer and think you have a chance. If your offer was written with no intention of being competitive against the other buyers, it is essentially dead on arrival. You must be intentional when writing an offer that you’re putting together the most competitive offer you can to win a home. If not, your offer is dead on arrival.
So how do you go about writing a competitive offer exactly? We need to understand the perspective from a seller’s standpoint. What is the ultimate goal for a seller? The highest sale price might come into your mind right away. And while that is an important component, it isn’t the ultimate goal. For most sellers, the ultimate goal is to successfully sell their home. The next most important goal would be to get the highest price possible. And then lastly, which offer provides the quickest and easiest path to closing?
So let’s imagine you’re a seller right now in this hot seller’s market. Your home has been on the market for a day and you’ve already got multiple offers in hand and it’s decision time! Your agent will go through each offer and explain the terms, pros, and cons of each offer. Now that all the offers have been reviewed, how do you filter the offers to determine a winner? Sort them by highest to lowest purchase price of course right? We now have our top 3 highest purchase price offers. Sorry but unfortunately, all the other offers immediately go off the table. Very important, this is the first cut, the offer price. If your offer price isn’t competitive enough to be amongst the top 3, your offer stops here.
Let’s assume you have done well enough to be in the top 3. Now what are the next criteria? Usually the type of funds being used to purchase the home. It usually goes in this order of preference: cash, conventional, and then government loans like FHA/VA. Why this order? It goes back to the ultimate goal of a seller, the path of least resistance to closing. Cash typically has no contingencies, there is no finance or appraisal contingency. That also means a quick close! And if there’s no inspection, then that is the holy trinity of offers, all cash, no contingencies, and quick close. That’s pretty much a guaranteed win every time. So if you’re up against that, you’re most likely done.
Let’s assume there is no cash offer in play and everyone is using loans. The reason conventional is preferred over FHA/VA is because FHA/VA loans have additional safety inspections and requirements, as well as appraisal protection clauses that can complicate the closing process. For these reasons, there is a possibility that additional issues may come up causing delays in closing. And whether the seller feels like their home may or may not pass, most sellers just don’t want to take that risk or delay in closing. So for these reasons, conventional loans beat out FHA/VA loans whenever the offer price is similar.
The next item of the order would be who’s providing the highest earnest money deposit. This means who’s putting the most skin in the game at risk here? Along these lines, another factor that some buyers take into consideration is which buyer is putting down the most down payment. Whether it’s true or not, most sellers assume that a buyer who puts down more cash is more financially sound and more likely to close. These days it’s common for buyers to put down the minimum required down payment only.
Other important factors that sellers consider as very important:
- Is the buyer asking the seller for any closing cost credits?
- Is the buyer asking for a home warranty?
- Is the buyer using a home sale contingency, meaning they need to sell their home first, to buy the seller’s home?
- Is the buyer requesting a home inspection contingency?
- How long is the inspection contingency period?
- Is the buyer allowing the seller the right to cure any defects discovered from the inspection?
- Is the buyer doing any additional inspections or testing? Who’s paying for these?
- Is there an appraisal contingency? Does the seller have the right to cure a low appraisal?
- What is the proration of property taxes and utilities?
- How quickly can the buyer close?
- Who is the buyer using to fund the loan? Lender reputations and relationships matter.
Now that you have a better understanding of exactly what things sellers are looking at when evaluating offers. Now you know how to write a clean and competitive offer to improve your chances of winning. And it starts with a competitive offer price. If your offer price isn’t competitive, then your offer is likely a non-starter for the seller. Just because you’re submitting an offer on a home, if you wrote your offer with very little intention of being competitive, in reality, you have very little chance of being selected by the seller. For these reasons, it is important to use an agent who is a local market expert who can help you narrow down a price that is competitive for the current market conditions. Rather than working with an agent who simply tells you to add $X on top every time with no rhyme or reason behind it. There is a strategy and art to crafting a competitive offer. If you have any questions or comments, please drop them below. If you’re in the Milwaukee market and need an agent who has a pulse on the market to help you buy or sell, contact me! Let’s chat and find out how I can help. Happy house hunting!