Working with first-time home buyers and those on narrow budgets during last Spring’s overheated sellers’ market was heartbreaking. So little available inventory. So many offers made and so many passed over for someone else’s who had fewer contingencies or emotionally bid up the moon to beat you out!
One of the most frequently asked questions I had come my way was
“Aside from increasing the amount of money we’re offering, what else can we do to win in a multiple-offer situation?”
As we head into the spring 2019 season, I will no doubt hear this question again, so today I want to share with you some tips that just might win you that home.
Write a personal letter to the seller
Sure, you’ve probably heard this before or been given this advice. Letters to the seller get a bad rap from some in the industry, but I’ve found them to be quite effective at times.
Keys to a good “letter to the seller” include making sure that your letter will connect emotionally with the seller. If during the showing you see they have kids, mention yours (if you have them). If they are a “dog” person and you are too! Mention how much you love their back yard as it’s a perfect place for your dog!! Explain, specifically, why you love the home and how living in it will affect your family.
Adding to this idea, I’ve found personal letters to the seller are even more effective when accompanied by a photograph of yourself and, if you have one, your family (and dog people, don’t forget the dog!)
While most of my clients seem to be expressive, motivated, writers in situations like this where their dream home is on the line. Yet, if you need ideas Housingwire.com recently published some sample letters that might just be a good spring board for you to get your letter under way!
Don’t put repairs in your offer
It’s tempting to want the seller to fix even the little things that you might pick up on as you walk through a house during a showing. If you truly love the home, avoid that temptation and leave out requests that the seller make or pay for repairs in your offer. Coming up with a complete list of repair needs and creating a contract amendment discussing any of your concerns with the property will come after the house is under contract, the home inspection is completed, all during your due diligence period!
The cleaner your offer, the more likely it will stand out among others. After price, the seller will look at all other terms of the contract that will cost him or her money when deciding on which offer to accept.
Speaking of due diligence for a moment, one thought additionally might be to reduce the due diligence if you can to stand out as compared to other buyers. In our market for example we see 10 days as pretty standard. I’ve had offers as a listing agent recently that were for a seven (7) day due diligence. Made those buyers stand out!
Increase your earnest money deposit
What sellers want most is to know that when they take the home off the market and put it under contract that the sale will go through. That you are emotionally “in the game.”
The is an “old school” strategy, but to reassure the seller that you are serious about the purchase of their home, you might consider increasing the amount of your earnest money deposit.
The earnest money deposit, by the way, is held in escrow and applied toward the purchase price at closing so it’s likely part of your down payment or cash to close anyway. The closing attorney or your real estate brokerage company may hold it in escrow through contract contingency periods to closing in safe keeping!
Some sellers feel that an increase in good faith money shows an increase in good faith – and sellers love that. I had a listing a couple of years ago that still stands out. A $300k home that just hit the market. The buyer offered the seller full price, but threw in $25,000 in earnest money. Wow! That was the most earnest money I had seen on one contract probably from then until now, but as I say, it still stands out.
Be flexible with your closing date
Believe it or not, I’ve seen buyers win a bidding war against higher offers just by being flexible on the closing date. I’ve seen financed offers, just this week alone, that were neck and neck on sales price with a cash offer and win because of closing date!
Offering to close on a preferred date by the seller, or even to rent back the home to them after closing for a limited time frame, may be a way to win in a multiple offer situation.
If the home is vacant, and you can, offer to close quickly! Of course, you’ll need to get with your lender to determine how quickly you can close, but this is an attractive offer to a seller with carrying costs inherent in a vacant home.
Use an escalation clause
This might be the single most productive thing you can do in a highly aggressive Spring selling season. Use an escalation clause. Why? Let me tell you what it is first. The escalation clause would state something like..
“Should the Seller have or receive multiple offers, prior to binding agreement, all parties to this offer agree that the Buyer’s offer price shall be increased by $1,000 over any other offer net amount (sales price minus closing costs). Upon final agreement, Purchaser and Seller will sign off on the final Purchase Price; hence arriving at Binding Agreement. Within 1 day of Binding Agreement, Seller shall provide Buyer with last best offer that caused the incremental increase in the Buyer’s Offer Price (as mentioned above); to verify/justify said increase to original offer.”
Why use it? Well, I’ve seen situations recently on back to back offers already in early March where two properties had 5-6 offers on them and the seller did NOT ask for highest and best offers! You don’t always get another chance. If someone makes an offer that is just “too perfect” to the seller, they may take it and you and the other buyers are out of luck! With the escalation clause it tells the seller that “if” they get any other offers prior to going binding on your offer, then with proof of that offer, you’ll increase the contract sales price per your offer by $1,000!
The monetary figure there could change. I’ve seen buyers who told me to put anywhere from $1,000-$2,500 in that section before. This can keep you from losing that offer due to that guy who was “just higher than you,” because the seller knows that your offer is worth more. You can’t really get beat out. This is all to say, within reason, you can’t get beat out. If a listing gets bid up above list price to a point where the seller and their agent are unsure if the property would appraise, then your going $1,000 higher than the highest offer may not have any benefit.
Yet it might. I had a seller in Duluth, GA last Spring in which we got 42 showings and 13 offers on their home in the first weekend. The buyer who won that bid had an escalation clause in their offer. It made it stand out. We had offers higher than their offer, yet due to concerns about appraisals down the road, my sellers took their offer (that was still above list price) and didn’t push them to the limits of their escalation clause.
Wouldn’t consider “Back Up’s”
If you’ve ever been in a multiple-offer situation you know that the seller may find another offer to purchase more attractive than yours. If this is the home of your dreams, some would encourage you to consider making a backup offer which will put you next in line if the chosen buyer backs out of the purchase.
Personally, I think this is a bad idea. Think about it from the seller’s side of the table. They have a contract that is more than likely at asking price or better. Why would they accept a “back up” contract for less? They have no motivation to do so.
What I find more useful as a buyer’s agent, is that I keep up a text (phone, email) conversation with that other agent. They and I become “BFF’s” while their contract is going through due diligence and other contingencies. I’ve had agents call me first when a deal did not go through, before anyone else looking at MLS would have known of the sudden availability of a home, because I stayed close to the listing agent. Also, with technology today, we can find out pretty quickly when that Pending or Under Contract listing is back on the market again. Almost immediately!
What I’ve found is that after a deal falls through, the seller’s home having been off the market for 5-10 days and longer, they are emotionally distraught and want to get that home back under contract as quickly as possible at that point! They had it in their minds that they had the house SOLD and were looking (and possibly already found) that next dream home of theirs! A seller in this emotional state is far more willing to negotiate with you than they were back when they were feeling “fat and sassy” with a fully priced contract in hand!
Still have questions? Reach out to me – I love talking about real estate!