Understanding How to Write the Best Offer for You & the Seller
With multiple offers routinely driving up the asking price on homes in the Virginia, Maryland, and DC markets, some baffled buyers are left wondering how their offers are ever going to be picked.
By understanding the four Ds of home buying—deal-breakers, down payment, dates, and demand—buyers can better position themselves not only to make a winning bid but even to shave some money off the final asking price. Here’s how the four Ds can help you when writing a bid and negotiating a contract:
- Deal-Breakers
In real estate, a contingency (or “deal-breaker”) is anything that must happen or be fulfilled for an offer to become binding. Because contingencies provide means for a buyer to back out of a deal, they generally create risk for sellers. Some of the most common contingencies are appraisal, buyer financing, and home inspection. Say, for example, a home inspection reveals structural damage. If a home inspection is written into the contract as a contingency, the buyer can back out of an offer, citing an unsatisfactory home inspection report. (Structural damage can be a big deal-breaker!)
To get the most favorable financial terms (or even to be the winning bid in a multiple-offer situation), buyers can waive as many of these contingencies as they feel comfortable waiving. Making an offer contingent on another home sale is one of the riskiest contingencies for sellers because so much can go wrong in a potential real estate transaction. If you’re a first-time home buyer and don’t have a house to sell or you can risk the financial burden of two mortgages until your home sells or rents, not including this contingency can make your offer more desirable.
- Down Payment
Cash is a big part of any real estate deal, and how much money you bring to the down payment can affect your chance at the home. Yes, needing 20 percent down is a myth, but the more cash you bring, the more certainty the seller has in your offer. It establishes you as a qualified, serious buyer. One of the best moves when making a house offer is putting down a larger-than-required amount of earnest money. This actually costs you nothing extra—the earnest money simply rolls into the final cash value you need to bring to closing—but in some cases it can get you a discount on the house itself.According to Realtor.com, “the seller may be willing to negotiate on the purchase price a little if you make a bigger good-faith deposit.”
- Dates
When it comes to writing a winning offer, the most important date is closing. Closing time refers to how long it takes between a seller accepting an offer and a buyer officially taking possession of the home. As a buyer, if you’re flexible on your closing date, this can pay big dividends. Check out these two scenarios:Added Convenience for the Seller
When selling one home and closing on another, the timing of a move can be complicated. Sometimes sellers are keen to have some extra time to make all the dates align properly. If you’re willing to temporarily rent back the home to the seller after you’ve taken possession (to the end of the month, for example), that flexibility and convenience could be worth thousands off the purchase price to the seller.
Minimized Cost for the Seller
On the other hand, sellers might be anxious to close as soon as possible. Maybe they’ve already closed on their new home, and this first house is suddenly just a second mortgage they need to deal with. Again, if you can be flexible on your closing date, that makes your offer more attractive. This not only makes you more likely to get the house when there are multiple bids, but you could even get away with a lower offer because you’re ultimately saving them in carrying costs.
- Demand
Whenever you’re looking to buy a home, housing prices will always be affected by supply and demand. In some markets, supply is abundant, and that can drive down pricing. Lots of homes are available, and that means buyers can be pickier—both about home features and price. In these instances, competition and prices tend to be lower.
In the Virginia, Maryland, and DC markets right now, we’re seeing the opposite of that. With very low supply, demand has been high and so pricing has gone up. (This does mean it’s a great time to sell!) Just because it’s a sellers’ market, though, buyers needn’t get discouraged. As you know, housing in this market has ALWAYS been a good long-term investment. Pricing can vary widely by house type and exact location. Even within the same zip code, expect varying levels of competition. Remember also that off-market listings in this climate can be huge for buyers. By seeking out homes before they hit the market, competition (and bidding prices) can be significantly reduced.
This can feel like a lot to take in, but the important thing to remember is that you’re not in this alone! The right Realtor can use these principles to help you craft an amazing offer—one that entices the seller while protecting your best interests.
Also, don’t forget that home buying is supposed to be fun and exciting! If you want an experienced Realtor who can also inject a bit of life into the proceedings, Talk to Ray today!
