Some communities and neighborhoods are ‘hotter’ than others, and homes in those areas sell faster and for more money. If you are looking to purchase a home that is in one of those areas, and the home itself is priced fairly, you may find yourself competing with other buyers to get your offer accepted by the sellers.
If you find yourself in a multiple-offer situation, making a stronger offer than other buyers will make all the difference. To make your offer as strong as possible, and ultimately acceptable to the seller, here are some things to consider.
If your earnest money deposit is protected by financing or inspection contingencies in the agreement, and you have the funds available, you may want to sweeten your offer by putting down a larger earnest money deposit. Earnest money is your good faith deposit to let the seller know you are serious about purchasing their home. Your earnest money deposit will be applied to your costs at closing. A large earnest money deposit may make your offer appear as the less risky option to accept, and set you apart as being the most committed buyer.
If you are getting a mortgage, you need to consider if the house will appraise for at least the purchase price. The price may be acceptable to you; however you must consider the possibility that the house may not appraise at that price. If the home doesn't appraise for the purchase price there will be additional hurdles to overcome. The discrepancy in the sale price and appraised value will have to be made up by either you or the seller. If you are making a substantial down payment, this will be less of an issue, or perhaps a non-issue.
If you are paying cash, then an appraisal is not required, unless written into the purchase agreement. Therefore, offers of cash and offers with larger down payments are more attractive and less risky for the seller, perhaps even at a lower purchase price. Cash offers with no contingencies are very little risk for sellers and a cash transaction can generally close very quickly.
Unless the offer price is significantly lower, it’s hard to compete with cash offers when you are getting a mortgage.
The kind of mortgage you are applying for, and what it states in your pre-approval letter, will carry a lot of weight in the seller's consideration of your offer. Certain kinds of loan programs, especially low down payment loans, may make your offer less desirable. There may be additional costs to the seller and/or inspections and repairs required after the appraisal. Since you are putting less money into the transaction, your offer, and ultimately your loan approval, may also be perceived as less solid than someone who has a large down payment. If you want or need to use a loan program that may be considered more risky or less desirable to the seller, then offering a higher price may be the way to go.
If you are in a competitive bidding situation, asking the seller to pay some of your closing costs may make your offer less attractive, even if the offer price is the same. Any amount the seller contributes toward your costs in the transaction is that much less in their pocket at the closing. So if you must ask for seller financial assistance, increasing the price may help. However, there is a good chance that your offer may still be perceived as more risky.
Common contingency clauses may also affect the perceived risk. Contingencies allow the buyer or seller to cancel the agreement under certain circumstances prior to settlement. Examples of common contingencies are (1) that you get your mortgage loan, and (2) that you have a satisfactory home inspection. There are many more contingencies that can be agreed to between the buyer and seller, but each contingency creates more of a risk to the seller that the transaction will not close.
However, if you’re a buyer, and you’re applying for a mortgage, the financing contingency is very important to include in the contract unless you are prepared to buy the house even if your loan is rejected.
Having a home inspection contingency is also very important, as a home inspection may reveal issues that affect the livability and/or value of the home. If you waive a home inspection contingency, you should be very aware of the potential consequences of doing so. See For Your Protection Get A Home Inspection.
Timing may also be very important to the seller. Your agent will find out from your lender how long it should take from acceptance to closing on your end. Your agent will also attempt to determine from the agent of the seller what timelines are important for the seller. You might assume that a quick closing is best, but it really depends on the seller’s circumstances. For instance, perhaps the seller can’t move for a period of time because the home they are moving to is not yet ready for them to occupy.
Having the ability to be flexible on the timelines of closing and possession of the home may make all the difference. If you are able to be flexible, you may have the advantage and ultimately prevail.
It helps to understand the motivation and situation of the seller, but that is not always an option. The seller’s motivation and personal situation is considered confidential information, so the seller’s agent must get permission from the seller to share this with you and your agent. This is when you really count on your agent's knowledge, experience and negotiating skills to guide you through a successful home purchase.
There are many things to consider when preparing the strongest possible offer that will be acceptable to the seller. Every situation is different, so your offer strategy can change depending on the property.
Contact us for assistance finding a home. We have been helping people just like you achieve their home buying goals in Chicago and the Chicagoland area for over 70 years.