One of the most stressful personal finance processes that people may go through is purchasing a home, which includes everything from making an offer to securing financing. In a seller’s market, like the one we are currently in, individuals often face a lot of competition when they put in an offer on a home. For this reason, people need to think hard about how much they offer and how they frame the deal. Some tips to keep in mind while writing an offer that is likely to appeal to a selling include the following:
Avoid the inspection contingency.
Often, offers include an inspection contingency that provides sellers the chance to cancel a deal or put in a lower offer depending on the results of a home inspection. Canceling this contingency puts the buyer at risk, but it can often make a contract stand out among several different offers. People who do not want to take the risk can consider paying for a pre-offer inspection. Commissioning an independent inspection before submitting an offer shows a seller how serious the contract is and lets both parties move forward with the deal without any anxiety. A recent study found that about one-third of current offers have waived the inspection contingency and/or undergone a pre-inspection, so this practice is becoming more common.
Work with a real estate agent on the offer amount.
Figuring out an initial monetary offer on a home can prove very taxing. Individuals who offer the asking amount will likely earn the respect and appreciation of a seller, but this offer could get drowned out by other buyers who put in offers above the asking price. However, individuals who offer too much above asking to secure a deal may be wasting money. In addition, there are certainly some cases in which an offer significantly under asking is appropriate, although low offers can sometimes insult sellers. Ultimately, a real estate agent who knows the seller and the area is a great asset. This professional can give guidance on the proper amount to offer to clinch the deal and what numbers are more likely to be rejected.
Include a personal note with the offer.
Sometimes, sellers have several offers on the table, and some may be for the same amount of money. While sellers may counter by asking someone to increase their offer, buyers can make themselves stand out with a note that appeals to the seller’s emotions. A short, handwritten letter will often touch a seller’s heart and make him or her think more about that particular offer. This letter should be simple and list reasons why the potential buyers love the home. Letters that can produce either empathy or joy from sellers will get the most attention. Buyers should also include information about how they will continue to care for the home, especially because sellers often have strong emotional attachments to their house.
Forego financial contingencies for the deal.
Not everyone has the resources available to waive financial contingencies while making an offer, but sellers who do so may be able to get a home for a lower price because the deal is less likely to fall through and waste everyone’s time. Some of the common financial contingencies include refundable deposits and making the contract dependent on the sale of the buyer’s home. While these contingencies make sense, they can create anxiety among sellers. Research by Redfin shows that offers without financial contingencies are 50 percent more likely to get accepted. The ultimate waiving of financial contingences is making an all-cash offer, which means that no financing needs to be figured out at all. In this case, the chances of a successful bid are nearly doubled.
Provide a preapproval letter from lenders.
The vast majority of buyers today need to finance a home. Sellers are much more likely to take an offer seriously when it comes with a letter of preapproval from a lender. This letter simply says that the lender has examined the buyer’s credit and income and that the individual truly can afford the home. Furthermore, this letter shows sellers that the buyer is serious enough to have already committed to a particular lender. Typically, sellers will accept a lower offer that comes with a preapproval letter over a higher one without it because a preapproval means that the deal is more likely to happen.
Include an escalation clause in the offer.
An escalation cause will automatically increase the monetary amount tied to an offer if another potential buyer submits an offer that is higher. Individuals can establish an upper limit for this clause, and a lot of thought should go into this number since getting stuck with a monthly mortgage payment that is much higher than anticipated can prove crippling. This strategy can prove especially helpful when a seller is torn between two different offers, one that is higher and one that is more likely to be finalized. If the more solid offer is willing to come to the higher price without the process of a counterbid, then the decision becomes much easier.