Note: This is the last post in the first round of my series ABCs of Buying, Selling and Investing in Real Estate. I take a letter (Z for this post) and make up a real estate story around it. The story is fake, but the advice is very real(
Zane called me one wet Saturday afternoon in January. Zane had spent the better of part of the previous summer attempting to buy a house. He had put in 15 offers in a span of three months, never once getting his offer accepted. Like many buyers in the market, he decided to take a few months of the second half of the year. He thought starting fresh would give him some needed perspective on the current market. After reading my blog, he decided to call me to ask what zesty things he could put in an offer to make them more appealing.
This is what I told Zane.
First, I let him know that I thought him taking a break from the fray of house hunting was a good idea. Home sellers have it really good right now with most everything on the market selling. If a seller has a decent home with fresh paint and floors, and present the home correctly, they will sell the house eventually. Buyers can get frustrated quickly in this type of market so taking a break from time to time is always a good idea. On the other side of the coin, however, a lot of buyers take breaks in the latter part of the calendar year so competition does lessen a bit, so you need to weigh the need for a break with missed opportunities. Discuss it over with your real estate agent to see how best to approach it. As far as offers, I spend a lot of time on my blog about offers and how to make them more appealing. Sellers are getting their asking prices for their homes so you need to make an offer stand out from the crowd by putting some “zesty” items into the offer. Cash offers are always a good idea if you can swing it, but most of us don’t have a stack of cash sitting around to purchase a home so if all the offers are financed, why do some offers get picked over others? It really depends on the seller. With some sellers, they are just looking for the highest priced offer with no concerns about other aspects of the contract. Some sellers do a thorough analysis of the offer and will go with an offer that gives the most overall value. Finally, I have sellers who never look much at the offer price. Instead, they want to know more about the buyers. Why are they buying the house? What do they do for a living? Will they have kids? Since a house is a sentimental attachment for many sellers, you can understand that they don’t want to sell their home to just anyone. Despite the reasons for sellers picking one offer over another, here are three ways to make offers more attractive.
1. Pay for some of the seller’s traditional expenses – Sellers already have to pay a commission for the sale of their home. All sellers then will be very conscious of other fees that they have to pay to sell their home. Buyers can offer to pay for some of these fees and really make an offer stand out from the stack. First, sellers will most always pay for the title insurance policy, which protects buyers from title claims and such. This fee can cost over a $1000 so sellers will jump at a chance to put off that expense. Sellers, who don’t have a current survey of the property, will also find themselves out of $600 or so to get a new one. Buyers can offer to pay for the survey, which most sellers will love. Buyers can also make inroads on their offers by leaving some expenses off the table of the seller. Residential Service Agreements are warranties against defects in the home. You have to pay $400 to $600 for these plans and most buyers will ask the seller to pay for it. Just putting N/A in this field will draw the attention of most sellers. Buyers can also restrain themselves from asking for closing cost assistance. Many buyers like to do this to help offset the fees involved with getting a mortgage. Sellers see this as a reduction in the offer price so if you want your offer to be more robust, don’t ask for any closing help.
2. Write a personal letter to the seller – This is a trick that many buyers’ agents will tell their clients to do to help establish a connection with the seller. As I wrote before in this post, some sellers really care more about getting to know the buyers purchasing their family home versus how much they can get for the property. Agents will instruct the buyer to write a personal letter to the seller explaining why they want the home and how they plan to use it after purchasing it. The idea is that the seller will love you over the other letters sent with offers. There are plenty of templates online for you to use as a model for writing these letters. Be careful here. There has been some press lately that buyer letters are against the fair housing laws and can incur federal fines. I find this to be a bit of a reach, but I am not an attorney so please always confer with an attorney before making decisions that might get you in trouble.
3. Offer above-asking price for the home – Pretty obvious point to make about making your offer more attractive. Give the seller more than they are asking for the house. It does work however as most people really do enjoy getting an offer over asking, even if it is a few hundred or a few thousand above. Sellers will always give more attention to these offers than the asking price ones. It should be noted here that some listing agents will list the home at a reduced rate in the hope of getting a bidding war started. In this tight seller’s market, it works more times than it does not. I always find this trick to risky and advise clients to price it at the market rate from the beginning. The other aspect of paying over asking is to make sure you don’t offer so much that the bank receives an appraisal much lower than what you are offering. When this happens, you suddenly have to come up with the cash to pay the difference unless you can reach an agreement with the seller to lower the sales price. It is always a good idea to ask your buyer’s agent to run a Comparative Market Analysis (CMA) so you can get a sense of the appraisal amount for the property.
Zane seemed appreciative on the advice and said that he hadn’t been advised to do any of these things. He said he would be giving me a call soon to go out to look at homes. He was happy to know that you can offer more than asking price for a property and fees can be taken off the table for the seller. Finally, he was really going to look into the personal narrative letter with his attorney.