In a lot of parts of Metro Atlanta, single-home inventory under $300,000 is tight and houses that are in great condition and priced right go under contract in a matter of two or three days. This is especially true for areas like Roswell, Alpharetta, and East Cobb. Most often than not, buyers and sellers are dealing with several offers at a time. How do you, the buyer, present an offer that will stand out from the rest and get you closer to owning your dream home?
Here are several good tactics that you can apply to your offer:
1. Do not make a low offer.
Have your agent determine how competitively the home is priced compared to similar homes in the same neighborhood and area, and if the price is right, do not start with a low offer that will put the other offer(s) in a better position. You may want to actually make a full-price offer or offer above asking price if your agent has solid evidence that the price will support the appraised value of the house which will be determined by an appraiser during the loan process. Paying over the asking price of the house does not necessarily mean that you are overpaying for the house. The value of the house is determined by how much a buyer is willing to pay for it and how much the seller is willing to take for it. Only you can decide how desirable a house is for you and what other opportunities you have on the market.
2. Limit the amount of closing costs and other concessions you are asking from the seller.
As important the purchase price is for the seller, there are other numbers that matter to them because they affect the seller’s bottom line directly. There are costs associated with the closing of a home that the buyer has to cover and the seller is allowed to pay up to a certain percentage of those costs if they agree to it. While it is always good to save some cash and have the seller pay for all or part of your closing costs, keep in mind that they directly subtract from the amount the seller receives from the sale of the house (250,000 with 5,000 closing costs to be paid by the seller means the same as $245,000 with $0 closing costs for them to pay). The smaller the amount of the closing costs, the more attractive your offer is to the seller. The same holds true for concessions such as home warranty which cost the seller money as well.
3. Consider offering at least 1% of the purchase price as Earnest Money.
Earnest Money is the deposit that you offer in advance of the closing, which shows that you are serious or “earnest” about buying the home. It is placed in a trust account with one of the brokers, usually, and it is given back to you at closing. The earnest money is like a promise to the seller that you will act according to the terms of the contract (if you do not, you might lose it). The higher the amount, the more attractive your offer is to the seller. In Atlanta, GA, $1000 is acceptable earnest money for up to $150,000 or even $200,000 in some cases, but offering 1% of the purchase price or higher will actually put you in a much more competitive position.
The following tactics have to do with time rather than money, but they are also very important for making a winning offer. When you are competing with other buyers some of which may offer similar price and closing costs as you, then these terms below may weigh in your favor. They have helped me win offers for my buyers and have made seller-clients reject cash offers.
4. Find out what closing date suits the seller best.
A lot of sellers prefer to close on their home as soon as possible even though that is not always the case. The seller may be fine with a 35-day or 45-day closing, but they may love your offer if you are offering to close in less than 30 days. Unless you are paying cash, you may want to check with your lender about their time frame for closing. At the same time, the seller may need time for moving arrangements or they may need to stay in their home a little longer before their new construction home is finished. Whatever the case, knowing what closing date the seller prefers and being able to accommodate them may get you one step closer to winning the offer.
5. Do not use financing contingency and appraisal periods that are too long.
When you are buying a house using financing, the lender needs some time before they can approve your loan. In the offer, you can put down a certain number of days called financing contingency period which is supposed to be long enough to determine whether you can get a loan for that house. (If the lender denies your loan, you can terminate the contract without any penalty, that is, without losing your earnest money). A shorter financing contingency of 21 days or less for example, tells the seller that it will not be too long before they know that your loan will close and makes them feel more comfortable about working with you. In order to use a shorter financing contingency in the offer though, you have to be sure that the time is long enough and you are not jeopardizing your earnest money. It is best to have all your documents submitted to the lender and reviewed by your loan officer or Underwriting before writing the offer, so that a big part of the lender’s work is done in advance. In all cases talk to the lender about the time it will take to approve your loan and do an appraisal (opinion of the value of the house done by an appraiser) to avoid unnecessarily lengthy terms and make your offer more attractive.
6. Submit a pre-approval letter with your offer.
Make sure you get a pre-approval letter from your lender to submit with your offer. A pre-approval letter is issued after the lender has reviewed your credit as well as your documents and has pre-approved you for a mortgage. There is a lot more to do to get a full approval, but you have a peace of mind that you are likely to be approved for a home loan. A seller who knows that you have been pre-approved will feel the same way. It is to your advantage to point out to the seller that you have a pre-approval as opposed to pre-qualification. With pre-qualification, the lender has checked your credit and gotten verbal information about your employment, income, etc., but has not seen any of the required documents for mortgage application, which means that they do not have a full picture of your situation.
7. Consider offering a shorter due-diligence/inspection period.
The Purchase and Sale Agreement by Georgia Association of Realtors (GAR) gives you the option to put down certain number of days called Due Diligence Period during which you can decide whether to continue with the purchase of the property or not. You can do inspections of the house and neighborhood, gather information about anything related to the house, negotiate any repairs that are important to you, etc. A seller feels much more confident that the purchase will go through after the end of the due-diligence period because they know you cannot terminate the contract because the house needs repairs or simply because you saw a nicer house down the street. A shorter due-diligence period in your offer tells the seller that you will be quick in deciding whether you still want to purchase the house. While ten days should give you enough of time for research and inspections, you may be able to complete them in seven days as long as you are prepared to act quickly and get inspections lined up fast. A seven-day due diligence definitely sounds attractive.
If you are absolutely sure that you have found your dream home in the perfect neighborhood, you may want to consider making your offer contingent on inspection only, that is, you will not terminate the contract for any other reason, but the condition of the property. This may be more attractive to a seller who knows their house is in great condition and the likelihood of you finding issues is small.
8. If possible, avoid making your offer contingent on selling your home first or being able to receive down-payment assistance funds for the purchase.
In a highly competitive situation with several offers on the table, a seller will be less willing to sign a contract on their home that depends on the sale of another home going through or the approval of down-payment assistance as some of those programs often mean longer contract-to-close period or depend on the condition of the house and certain environmental factors around the house.
To sum up, if you are in a multiple-offer situation, making your offer attractive to the seller does not stop at offering a high purchase price. I have helped many buyers submit a winning offer and sellers choose the right buyer and I will be happy to do it for you.
Here are some additional helpful articles related to this topic:
How low inventory affects home buying via Trulia.com by Ralph McLaughlin
Tips to win in a multiple-offer situation by Kyle Hiscock
How much to offer once you find a home by Lynn Pineda