How to Make the Best Offer on a Home
Recently, I’ve been working with several Buyers and we’ve noticed how fast homes are selling in the Orange County, CA area.
It can be very frustrating for all involved so I thought I would address the major question that every Buyer has in the current market. The question is… “What do I have to do to get my offer accepted? I keep making offers and never get one!”.
In this fast paced environment, making the winning offer means being prepared beyond belief. Writing the winning offer is more technical than in the recent past. Naturally, having a pre-approval letter is still the number one item on the list of things to have. There are many others too. I would recommend this list be fulfilled before you submit another offer on any home for sale in Orange County.
Realtor… A seasoned Realtor is the one asset in the home buying process that you get to choose. Choose a Realtor that you feel comfortable with. Take the time to talk to more than one. Find one that you feel is listening to your needs and wants. Often, you may choose one that has been referred to you by a friend. After all, if your friend liked them, there is a strong probability that you will like them too.
Lender… A Mortgage Broker is more flexible than your bank. Every bank does mortgage loans, right? Yes, however, they only offer mortgage loans that they have available at a given time. Mortgage Brokers offer a nearly endless number of mortgage options for you to choose from. The big banks offer loans in cycles and while one bank may have a great mortgage option this month it may be unavailable next month. A mortgage broker will be your best source to secure the mortgage loan that fits your needs all the time. They are usually much more affordable in the long run too.
Multiple Pre-Approvals… Realtors are pushing their own lenders an awful lot lately. You can overcome this by obtaining multiple pre-approvals from a few major banking institutions. If a seller is requiring a Wells Fargo pre-approval, to test your credibility, be prepared in advance and get one. This will also expedite your offer process and could secure the home before anyone else has a chance to produce the required pre-approval.
Proof of Funds… This can be in the form of a letter, however a copy of your bank statement is more suitable. Warning: Your account numbers should be redacted from any form you choose to use. If your money is in an account that requires several days to be made liquid, consider depositing those funds in your savings account where they are readily available. Speak to your financial adviser or accountant to be certain you are doing so in a fashion that does not introduce negative tax ramifications.
Deposit Check… This is a required item that is often handled poorly. I have seen some pretty bad examples and I want you to give this item some serious attention. The date of the check should be current and the memo should not refer to a previous property that you have made an offer for. The recipient should be the title company where escrow is being held and the amount should be correct and reflect the structure of the offer.
Offer Summary… Today, most homes for sale in Mission Viejo and surrounding areas homes around the Orange County, CA areas receive multiple offers. This can cause confusion for an unprepared listing agent. Purchase offers are full of detail and some very slight differences could make or break your chance of getting yours in front of the seller. My suggestion is to have your Realtor create an ‘offer summary’ to help the listing agent understand your offer. This should also be used in the text of any offers submitted electronically. This summary is simply an outline of the offer structure. It must include offer price, timelines, deposit amount, type of loan, loan amount, down payment amount, length of contingency periods and any specific exclusions or inclusions that will up sell your offer.
Disclosures and Inspections… If the home for sale that you are considering has the seller disclosures or inspections available, review them prior to making your offer and sign them. This will put you another step ahead of other buyers. Every advantage has to be taken in this market.
Contingencies… This is where most successful buyers are finding the greatest potential to gain an advantage. The loan, appraisal and property condition are the important ones. If you can get a written guarantee of loan approval or the seller’s inspection reports are sufficient then you might remove these contingencies or make them very short term, for example 3-7 days.
Applying these fundamentals and executing them properly will not guarantee your success. They will however, put you ahead of more than half of the competition out there.
All of this information would be moot if I did not discuss appraisal gaps. Appraisal gaps have been a serious issue for the last few years. When multiple offers push the price above market value, the buyer who is using a mortgage loan will not receive a loan approval if the value does not match the offer price. A buyer who has additional cash resources to cover any appraisal gap will have an advantage.
I strongly recommend that you find a way to cover an appraisal gap prior to making a high offer. How do I do that, you ask? Choose a loan that allows you to keep some of your cash, discuss any rebate programs your Realtor or lender may offer or choose a home priced below your loan approval amount, saving you some cash.