Writing an Offer in a Seller‘s Market? Here’s What You Need to Know.

When you're dealing with a seller's market, it can be tough to navigate the waters of competition and multiple offers as a home buyer. Have no fear. With a little planning, digging, and thought, it IS possible to make your offer stand out against the pack, while still protecting yourself as a home buyer. Read on for some tried and true tips to consider when crafting the offer on your new home.

Price isn’t the only factor

It's easy to fall into the trap of thinking that price is the only deciding factor that sellers consider if they receive multiple offers on a property. If there are 3 offers, the offer with the highest price automatically wins, right? Not necessarily. Sure, price is a large factor. Money talks after all. However, if a home seller is smart, they will evaluate each offer as a whole before selecting the winning bid. As a home buyer, there are certain things you may be able to include - or eliminate - in your offer in order to give you the best chance to stand out in the pack, even if your offer is not the highest price.

Consider contract terms

Financing

Let's just say that you aren't one of the few paying cash for a property, and that you will be financing your home purchase like the rest of us.A mortgage is a mortgage, right? Not so fast. Certain types of financing may be perceived as 'safer' or 'less of a headache' options if you are a home seller. These perceptions may be reality or not, but I see them play out every day in a sellers head.Let's review a few offer scenarios...

Offer #1) pre-approved buyer, using conventional financing, and putting 20% down. 

The seller may draw several conclusions from this scenario including:

• The buyer has already been proactive and gotten pre-approved.

• Conventional financing shouldn't cause headaches with the appraiser nitpicking items that need attention

• The buyer seems to be in a good financial state if they are putting a solid 20% down.

Offer #2) pre-approved buyer, using FHA financing, putting 3.5% down?

The seller may draw conclusions like...

• The buyer is pre-approved. Check.

• FHA financing can be more difficult if a property is in need of any obvious repairs. Also, if there is an issue with an FHA appraisal, it is harder to remedy.

• The buyer is putting some money down, though not a ton.

Offer #3) offer from a buyer who hasn't yet gotten pre-approved?

If the seller has any sense, this offer is going to the bottom of the pile. If you aren't pre-approved, you're wasting your time and everyone else’s.

Moral of the story... when strictly comparing financing in a sellers mind, typically conventional financing beats out other types of financing. Usually offers with higher down payments beat out offers with no down payment, and pre-approved offers blow unqualified offers out of the water.

So does this mean as an FHA buyer you will automatically get beat out by a conventional offer? No it doesn't. Just know that you may need to find other ways to make your offer attractive to the seller. Keep reading to learn how.

Closing Timeframe

As a home seller, your ultimate goal is to remove contingencies as quickly as possible and make it to the closing table. For this reason, in most cases as a home buyer, it will pay off for you to request the shortest closing timeframe possible. Now does that mean you should tell the home seller you will close in 2 weeks, when in reality, that's not even a feasible possibility? Absolutely not. However, if your lender thinks its realistic to close within 30 to 45 days, stick with that timeframe, don't ask for a 60 day close.

Contingencies

There can be any number on contingencies, but there are several that are customary to most real estate contracts and they include the following:

• Financing

• Inspections

• Appraisal

Inspections

Remembering our tried and true rule that sellers wish to remove contingencies as quickly as possible, you could approach this contingency in a couple different ways as a home buyer.

1.) As a buyer, you could waive your inspection period.

This one isn't advisable in most situations. Reason being, that opens up the door for too much risk. Unless you really know what you're looking at OR are willing to accept a lot of risk, you should really think hard about going this route.

2.) You could request the shortest realistic inspection time frame possible.This option is more realistic for most home buyers. While you want to create a good offer, you still want to protect yourself. Consider the shortest realistic amount of time in which you can conduct inspections. If you can get them done in a week, don't ask for two weeks. Some factors to consider when defining an inspection timeframe are local inspectors work loads, the number of inspections you will be conducting, and overall condition of the home.

Appraisal

As for the appraisal, this is not a contingency you have much room to pay around with if you are using financing. You can try to put a timeframe on it, but be sure to confirm this with your lender.

Possession

Above we discussed how home sellers usually wish to close as quickly as possible. This doesn't necessarily ring true with handing off possession though. Try to do some digging into the sellers situation. If they have back to back closings where they are trying to coordinate movers, they may see an extra 2 days of possession after closing as a huge benefit.

On a larger scale, maybe a home seller is still figuring out where they are moving to. If you have flexibility as a home buyer, you could consider offering to rent the home back to the seller for a month while they continue to househunt.

Think outside of the box

Play into seller emotion

This tip is highly subjective, and is not a fit for all situations, but I have seen it work on occasion. As a buyer, you have the ability to write a letter to the home seller to be presented with your offer. Your goal in doing so is to try to connect to the home seller on an emotional level, moving your offer to the top of the sellers mind. Is a handwritten letter going to make a seller select your offer over other significantly better offers? Probably not. But if two offers are very comparable, a letter may push you over the edge in the right scenario.

Make the sellers life easier

In general, anytime you can make the sellers life easier, it will be appreciated when reviewing your offer against others. Here are some examples of making the sellers life easier...

• Accepting the home with items the seller does not want to move.

• Make your closing timeframe 'flexible'. You might write 30-45 days in the contract, but if you do not have to adhere to a set timeframe, you can let the seller know you're happy to close as quick as 30 days, but you're open to giving them longer if it benefits them.

• Keeping your offer as 'clean' as possible.

Case Study

So far you've learned that price, terms, and the sellers situation need to be considered when drafting your offer in a seller's market. Let's apply this knowledge and review a real life multiple offer scenario.

The Seller

Daniel and Mindy are the home sellers. They have lived in their home for 20 years and raised their children here. They have decided to downsize, and their future home is under construction with completion in 2 months. They listed their home for $250,000 and received multiple offers after just one day on the market.

Offer #1
$250,000
FHA financing with 3.5% down, pre-approved buyer
Flexible 30-60 day close, allowing the seller to keep possession 2 days following closing to allow time for moving
10 day inspection period

Offer #2
$235,000
Cash deal
25 day closing with possession at closing
15 day inspection period
Contingent on the closing of the buyers current home, which is under contract.

Offer #3
$252,500
Conventional financing with 5% down
30 day closing, possession at closing
12 day inspection period

And the winner is....

In Daniel and Mindy's situation, they review all offers and decide that each offer has pros and cons, but that Offer #1 makes the most sense in their situation. Let's review why.

• Offer #1 was not the highest price, however, it was what they were asking.

• Offer #1 offered the most flexibility in closing time frame and possession. In Daniel and Mindy's situation, this is very valuable since the home they are moving into is under construction.

• Offer #1 was a pre-approved buyer.

• Offer #1 had a reasonable inspection timeframe.

So let's point out, Offer #1 beat out a higher priced offer AND a cash offer, due to the terms being more desirable to the seller.

If there is one takeaway you get from this post, it would be to consider your contract terms and how they stack up with the sellers situation as much as you do your contract price.