In markets where demand is high and inventory is low sellers have the upper hand as it relates to negotiations. Sellers can be confident they’ll get a full price offer and will be reluctant to do much negotiating. This leaves the buyers at a disadvantage when making an offer as the sellers stand firm while at the same time you’re competing with other buyers. The best way to get your offer accepted even though your offer might be lower than what the sellers are asking for? Pay cash. An all-cash offer means the sellers don’t have to worry about the deal falling through due to some problems with the buyer’s loan approval or the property has some appraisal or physical issues. But unless you’ve got a few hundred thousand sitting in your bank account to use for a home purchase, you’ll need a home loan. And even in a tight real estate market, there are ways you can have your offer stand out.
Make a Larger Earnest Money Deposit
Getting Earnest. An earnest money deposit will accompany your offer, sometimes referred to as “consideration.” Money accompanying an offer will do directly to the settlement agent who will apply those funds to your down payment and closing costs. Earnest money can be refunded to you should the property not appraise or there are some physical issues that can’t be resolved. However, earnest money can be forfeited to the sellers should you not do the things you’re supposed to do that are laid out in the sales contract. One of them might be if your loan is declined. Or, your loan application is taking too long and the sellers cancel the contract taking your money. How much should your deposit be? Your agent will tell you what is common for your area, such as 1-2% of the sale price. But you can get an edge with your offer by depositing more than what is standard. If a standard deposit is $5,000, make a $10,000 deposit instead.
Make a Offer Using a Conventional Loan
Solid Financing. It’s unfortunate but some loan programs still get a bad rap. For example, for years buyers who used a VA loan to finance a purchase would often see their offer be turned down. Why? Because the VA took control over the approval process and approval times could take weeks or months and there seemed to always be appraisal issues. That’s not the case today, as individual lenders can approve a VA loan. Yet many are still under the impression that VA loans take too long and can fall out too easily. FHA loans can also be misunderstood. The most popular choice for first time buyers is the FHA mortgage. Why? Because there is only a 3.5% down payment requirement and credit guidelines are somewhat relaxed compared to other low down payment conventional options. Sellers might see an FHA loan and think there might be some approval issues. Again, that’s not fair nor true but it’s the perception. Instead, make it clear your loan of choice is a conventional loan, one that is approved using Fannie Mae or Freddie Mac guidelines.
Making an Offer on a House with a Letter
Tell Your Story. Here’s a little known tip that almost always works…write a letter. Sit down and write a letter to the sellers telling your story and how much they love their home and will take good care of it. For example,
“Dear Sellers- Finally we’ve found the perfect home and thank you in advance for considering our offer. We’ve been looking for a three bedroom home with an office area. Why three bedrooms? Because we’re expecting our second child in a few months and we’re so excited! Plus, I work from home part time and I really needed a separate area for work. You have a lovely home and we absolutely love it. We’ve also applied for a loan and all the lender is asking for is a property. Our credit and income and everything else have been verified. Can we buy your home?”
Offer the Sellers More Occupancy in the House
More Time. When making an offer there is also a place for a suggested closing date and in many cases that’s 30 days, but that’s up to you and the sellers. Remember, the sellers typically need to sell their current home in order to buy and finance their next. That’s a lot going on in a shorter period of time and can lead to a lot of stress. Instead of 30 days, why not give the sellers some more breathing room and suggest a longer closing date, say 45 days or something similar This shows you’re thinking of them and might just put your offer over the top.