This great re-post should almost be re-named what SHOULD Sellers look for in a good offer? Here are some fantastic tips for Door County sellers everywhere. Remember...a home is worth what someone is willing to pay for it. And if you have gone a long time without an offer...it's time to reconsider price.
Before we attempt to answer this question, it's always good to remind sellers:
- Your property's market value is driven not by what you think it's worth or what you want for it, but rather, what your buyer is willing to pay for it.
- Estimating market value by going to online resources like Zillow, eppraisal and Cyberhomes may provide some insight, but a local realtor and/or an appraiser well-versed in the local conditions are the better resources.
That said, what factors play a part in making an offer a good offer? Here are some things a savvy buyer and his agent should consider:
This is is the single most important factor. Even if there is an offer that is all cash, but another and much higher offer is submitted with very strong terms and conditions, the higher offer still stands a chance of getting accepted if the seller is willing to wait a little bit longer to close escrow.
Your realtor should provide market comps to determine a fair offer. Remember that on the listing side, the realtor is armed with the same information. As such, low ball offers will be exposed for what they appear to be: buyers playing the game and see what sticks.
DEPOSIT AND DOWN PAYMENT
The higher the better.
For initial deposit, the usual amount is between 1-3% of the offer. The higher deposit shows how much the buyer is willing to risk if he defaults on the purchase, i.e., backs out after releasing his contingencies. That shows his seriousness in completing the purchase.
CONTINGENCIES and TIMELINES
During the super-heated days of overbidding, some buyers wrote offers WITHOUT any kind of contingencies, which meant that as soon as the sellers accepted the offer, the buyers are locked in and can't back out of the offer without losing their deposit.
Buyers are cautioned to keep some contingencies in place. It's for their protection. Naturally, the shorter the contingency periods, the better.
- Buyer investigation. In California, our standard purchase agreement mentions 17-days to do your buyer inspections and other research that includes researching the schools, crime and safety factors, etc. The shorter the period of investigation, the better.
- Loan appraisal - it used to be that both the loan appraisal and loan approvals have the same time contingency. No more. A property may have an appraisal in less than 2 weeks, but the lender's underwriter may take longer to approve the loan. One can shorten the loan appraisal contingency, but not have much say about the approval contingency itself.
- Loan approval - depends on your oan. If you're getting an FHA approval, they usually ask for a minimum of 45 days to close escrow. That's why some sellers prefer conventional loans wherein they have a shorter time.
- Other contingencies and conditions:
- Contingent on buyer selling own property ---- this severely weakens an offer
- Seller wants the sale subject to their finding a replacement property - another big IF. What if the seller doesn't find or qualify to buy a property. Is the buyer willing to wait?
- Seller asks for rent-back.
- If buyer really wants the house, buyer may be willing to do a rent-back. But don't make it longer than 30 days after you close escrow because the insurance may rise if the insurance company determines that it's not owner-occupied yet and deems it as an investment property at a higher premium.
- A fair rent-back is usually whatever the buyer's PITI is, prorated by day
- Escrow period - generally, the shorter the escrow period, the better.
- Seller could specify longer escrow period (as in cases of sellers who are trying to avoid a pre-payment penalty)
- FHA loans usually take 45 days to close....if seller wants 30-day close, seller may not consider a buyer with an FHA loan.
- Property is vacant. That's a good sign that the seller may want to close quickly. Thus, the shorter your escrow period, the better.
The easier you make it for the seller to do business with you, the more attractive your offer becomes. Some of the things the sellers look at
- No request for credits ---- especially NOT at the offer stage, before one is even accepted or before one has inspections done. After your offer is accepted and after investigations, etc. you may want to submit an addendum for credits.
- AS IS --- especially if the property appears to be in good condition, and inspection reports were already completed (and paid for the seller) and provided to the buyer. All offers, by nature, are AS IS anyway...until you come back with a request for repairs if one is warranted after you discover safety and hazard issues
- Compliance with government regulations and requirements as a condition to close escrow. For example, in some cities, it is required to install an automatic gas cut off valve. Some homes may not have this installed, and will need to have this done before close of escrow. Don't stew over not having smoke detactors. You can do it yourself very inexpensively.
- Transfer taxes. Also known as documentary stamps in some locales. Who is responsible for the county and city (if applicable) transfer taxes? Is the buyer willing to take on some of these costs?
- Escrow fees - Buyer is responsible for own fees. HOWEVER....if you're writing an offer on a bank-owned property, and if they prefer using their own escrow/title company, you can specify that seller will pay for the title insurance.
- Choice of title company - if the seller has opened a pre-escrow with a reputable company, why not use that company? Do remember that you as the buyer have the right to use the title company of your choosing.
- Home warranty - many buyer's agents give their clients a home warranty (it's a great precaution, and a gift to the buyer that the agent should not hestitate to give). Don't ask the seller for it. It's one less expense they don't need to undertake.
Today, a preapproval letter may not be enough to get an offer accepted. In many cases, we've looked for:
- Proof of funds to show buyer's ability to close escrow
- Desktop underwriting approval - to show how far in the application process the seller has gone
Don't be surprised if the listing agent asks to speak directly with your lender for additional insight
So when the seller asks you to submit your BEST and HIGHEST offer, think price, terms and conditions.