When low housing inventory meets high demand, fierce competition results. In that type of environment, buyers may find themselves in a bidding war for a desirable property. If you’re new to the market, or have lost out on a property already, here’s how to write an offer that’s sure to come out on top.
1. Offer the Full Asking Price (Or a few percentage points over)
If you’re serious about winning, the last thing you want to do is submit an offer that undercuts the asking price. If the listing agent has multiple other offers, he or she won’t think twice about discarding your offer if they have another offer at full asking.
2. Write a Strong Escalation Clause
You know that you’ll be competing with other parties that are offering the full asking price. If you’re financing allows, include an escalation clause in your offer that raises your sales price by a fixed dollar amount above what the competition is offering. Bear in mind that the decision to escalate is dependent on two things: your agent’s ability to hone in on the real value of the home, and the price at which you would be willing to concede the property to a higher bidder.
For example, if you’re competing for a $600,000 property, and you’re financing allows you to purchase up to $630,000, you should include an escalation that states your willingness to escalate your price over whatever the competition is offering, up to $630,000. But be aggressive: make sure that you are escalating in increments that make your offer sweeter for the seller. If you are only going to offer $500 more than what your competition is offering, the seller has a very small incentive to choose you over the competition. On the other hand, if you offer $2000 to $3000 over the competition, you’ve just made it a lot tougher on the seller to say no.
3. Tighten your Timeline
Sellers and their agents want a quick closing. If you’re confident that you’re financing can be approved in under 30 days, and your buyer agent will keep tabs on everyone involved in the transaction, shoot for a 30 day settlement (or even less if you have a really great lender). In addition, keep your contingency periods as short as possible. Contingency periods are days built into the contract that will allow you time to inspect the home and secure your financing. If you have shorter time frames for those contingencies than your competition, the seller is more likely to choose your offer for the sake of a faster closing.
4. Offer a Significant Earnest Money Deposit
The earnest money deposit protects the seller from having a deal fall through just because the buyer gets cold feet. It is a check from the buyer that is held by the title company until settlement. If the buyer decides to walk away after the designated period for home inspection and appraisal, the seller gets to keep that amount.
Show that you’re a serious buyer who won’t walk away from the deal once the house has passed appraisal and inspection by offering a large earnest money deposit. The seller will have more assurance of closing the deal if you’re earnest money deposit is a significant sum that would be painful for you to walk away from.
5. Have Your Agent Present the Offer in Person
This tactic is old school, but agents who are truly committed to their buyers will take the time to submit the offer in person during a competitive situation. Nothing makes more of an impression in the mind of the listing agent than a buyer agent who is willing to make an extra trip for the sake of presenting his client’s terms in person.
In conclusion, there’s no way to make absolutely certain that you’re offer will be the one that comes out on top, but by following these 5 simple steps, you can make sure that your offer always stands a fighting chance. If you and your agent pay attention to these details, the seller will have a very hard time saying no.