How to Strengthen Your Offer on a House
You’ve been driving by the same neighborhood now for the last four years, waiting for a house to go up for sale. It’s in the school district you want your kids in, and living here would shorten your commute to work by a good 20 minutes every day.
You’ve crunched the numbers. Interest rates have dropped. And even though the prices in the area have continued to steadily rise, you can afford the monthly mortgage payment.
You know you’ll need to move fast. But how you make that initial offer could very well make the difference between you driving a moving truck into that new neighborhood, or wishing you would have done something to strengthen your homebuying offer.
In this article, we’ll go over just that.
First things first: Is it a seller or buyer’s market?
Before you jump into the homebuying mix, you need to know what kind of market you’re in.
House-shopping in a buyer’s market is very different from looking for a home in a seller’s market. You’ll want to adjust your approach and expectations depending on the type of market you’re in.
Signs of a seller’s market
Nine out of ten markets in the United States are experiencing home price gains in 2019, while very few are declining, according to the National Association of Realtors. That means in most areas, you’re going to be experiencing a seller’s market.
Below are some of the common signs you’re buying in a seller’s market.
Houses don’t stay on the market long
If you’re seeing houses selling soon after they are listed for sale, that’s a pretty good sign you’ll need to be quick on the draw with a strong offer.
Prices are stable or keep going up
This means you’ll need to be competitive with your offer.
Not many houses for sale
Seller’s markets often don’t have a lot of inventory, so you’ll need to be more proactive, and work with an experienced agent to stay on top of properties as they become available.
Signs of a buyer’s market
A buyer’s market will pretty much flip the script. More houses will be for sale, and you’ll start seeing price reductions if they don’t sell within a few months.
Some of the more typical buyer’s market signals include the following.
More “for sale” signs and advertising
The first sign will likely be more “for sale” signs popping up in neighborhoods, or more “for sale” postcards in your mailbox from local neighborhoods. When home sales start to slow, marketing activity picks up to speed it back up.
Houses stay on the market longer
Sellers who list their homes when prices have peaked may find their home sits on the market longer, and those longer listing times are a sign that buyers can haggle more over price.
New home sales are listed for less than recently closed sales
Your realtor should provide you with a list of sales for the last 90 days when you start looking at homes. You’ll want to take a look at these and compare them to the prices on newly listed homes. If asking prices for homes coming on the market are lower than recent sales on your list, you may be in a buyer’s market.
12 ways to strengthen your homebuying offer in a seller’s market
A seller’s market means that many homes are receiving multiple highly qualified offers, making it that much more important for you to have a strong one. There are a number of ways to strengthen your offer in a seller’s market, but it will require you do some extra homework and legwork to put your best offer forward.
1. Make an all-cash offer
Cash is king in real estate, and if you have the means to make an all-cash offer, you’ll have the best chance of getting your offer approved — assuming the seller is ready to move out. There are a number of strategies for putting together a cash offer, but it will depend on your resources. Here are some ways to make it happen.
Borrow against your current assets
If you’ve got a 401(k), own a home with equity, or have access to a lot of liquid assets, you may be able to raise enough cash to purchase a home without financing. You could also ask family members for a gift, or ask them to go in on the purchase with you and then refinance the home to buy their ownership out after you close.
Get cash, then do a Fannie Mae delayed refinance
Fannie Mae has a special program called a “delayed refinance,” which allows you to recoup some of the funds on an all-cash purchase. As long as you complete the refinance within six months of buying the home, you can take advantage of the flexibility of this unique cash-out refinance program for recent all-cash purchasers.
2. Get pre-approved for your financing
If you don’t have the resources or a benevolent family member willing and able to help you out, the next best thing to an all-cash offer is a speedily financed closing. There are several ways you can help close a mortgage loan quickly, and knowing what to avoid will give you an edge in the offer-making process.
Getting full mortgage credit approval in advance of an offer
Sellers may be hesitant to accept an offer contingent on mortgage financing unless it comes with a fast proposed closing date that shows the seller you have confidence your loan will close on time.
While a pre-approval is always a requirement for any seller to take you seriously, an offer that comes with a full credit approval is even stronger. It shows the seller that an underwriter has already given you the green light based on a review of all the supporting documentation need to approve your loan request. Many lenders, especially digital mortgage lenders, are offering full credit approval programs so you can be ready to go when you find a property.
Loan programs that sellers may not like
Government loan programs like the FHA and VA have a reputation for being more difficult to close. This is primarily due to the fact that they have more stringent property requirements, and are designed for buyers with little to no down payment. This could make a seller nervous about whether you are really a solid buyer candidate.
Conventional loan programs have more stringent financing requirements for credit, income and asset verification, so if you can come to the offering table with a conditional approval for a conventional loan, sellers may look more favorably on your offer.
3. Make more of a down payment
Besides getting you a lower monthly payment, a bigger down payment tells the seller you are likely more financially sound. “Skin in the game” is a term often used in the real estate and mortgage world to determine the amount of commitment you have to making a purchase.
If you are willing to commit your financial resources to a home purchase and show that by putting cash down for your mortgage, a seller may take you more seriously than a minimum down payment buyer’s offer.
4. Talk to the listing agent and the seller
Although your realtor is likely to do most of the talking to a listing agent and seller, you may want to join the conversation if you really like a particular home. Find out what’s motivating the seller, and try to tailor your offer to appeal to those motivations.
For example, if you find out the seller is building a new home and needs the proceeds to move in when it’s completed, you might offer to allow the seller to live rent free for a month in the house in case there are any last-minute construction delays. That personal touch could set your offer apart from other buyers who don’t take the time to learn a little about the person they’re buying a home from.
5. Make a big earnest deposit
Just like getting a mortgage pre-approval with a larger down payment shows you are more financially sound, putting a large earnest money deposit is also a sign of your commitment to buying a particular house.
An earnest money deposit is an initial amount you deposit into an escrow account to show your commitment to buying a house. A seller may view your offer more favorably if your earnest money is substantially more than other offers.
6. Waive your inspection and appraisal contingencies
If you are buying a relatively new house, or one that has been renovated or shows obvious pride of ownership, you may want to write an offer without any contingencies for an inspection or for the appraisal to support the sales price. Not only may a seller appreciate not having to deal with an inspector coming into their house (especially if they are trying to get ready to move), but they may take it as a sign that you really love the home and respect how they have maintained it.
You should still protect yourself by getting a seller property disclosure report, which is the seller’s legal certification of any issues that the house may have had that were repaired during the time the current owner has lived there. If there have been any major insurance claims on the property, they are likely to show up when you start shopping for homeowners insurance on the home.
You may also want to consider buying a home warranty if you forego the inspection and appraisal contingencies. Also, if you’re putting down 20%, you may also get a property inspection waiver option. If that’s the case, it’s a pretty good sign that the house is worth the price you’re paying, because the automated system tracks closed sales data when determining eligibility for the waiver.
7. Offer over the listing price
If you’ve been waiting forever to buy a home in a particular neighborhood, you may want to consider offering to pay a price over what the house is advertised for. Take caution: You’ll need to be prepared to pay that price even if the house doesn’t appraise that high if you’re financing with a mortgage.
8. Avoid asking for seller to pay anything extra
In a seller’s market with multiple offers coming in, you’ll want to avoid asking the seller to pay for closing costs. If you do ask for a concession, you should at least plan to make a full price offer.
Be ready to counter-offer fast, and be sure that the seller is at least paying the standard fees in the transaction, like owner’s title insurance and a portion of the settlement or escrow fee.
9. Work with an experienced agent
A seller’s market is not the time to give your newly licensed nephew a shot at negotiating in a super competitive market — that is, unless he is working on a team with a top producing agent in your area. Experience does count, as there are a lot of moving parts with a real estate sale that a seasoned agent will know how to manage.
Agents working for larger companies may also have a larger pool of listings coming in, giving you an advantage to get information any new listings first from other agents in the same company.
10. Offer to close fast and lease back to seller
This was mentioned above in the mortgage pre-approval section, but it deserves some extra detail here. This is basically a combination offer strategy that allows the seller to get the proceeds of the sale faster, but gives time for the seller to move out.
This can be an especially considerate gesture for sellers who may have lived in the house for a long time and need more time to downsize, pack and move. If you need mortgage financing, the lender may expect you to move in within 60 days — so make sure you remember that when you’re writing your offer, because the lender may not allow a longer-term leaseback.
11. Escalate your offer in writing
You can add an “escalation clause” to your contract that allows you to automatically counter any competing offer up to a maximum amount you outline in the contract. Again, be warned: If the property appraisal doesn’t support the sales price, more than likely you’re going to end up paying the difference out of your pocket.
12. Pay attention to the seller’s details
This may seem obvious, but sellers may outright dismiss your offer if you don’t take the time to read any exclusions included in the real estate listing.
An exclusion usually refers to personal property that the seller does not intend to sell with the property. But it can also include items that are affixed to the house, like a built-in bookshelf the seller plans to take with them. Exclusions can even pertain to the type of pre-approved financing a seller will accept as part of an offer.
Below is a brief overview of some exclusions to look for before you make your offer.
Fixture and personal property exclusions
The difference between a fixture and personal property is fairly simple to understand. A fixture requires a screwdriver to remove it, while personal property does not. Typical examples of a fixture would be drapery rods, a TV wall mount, or a built-in bookshelf.
Personal property includes refrigerators, washers and dryers, the TV that’s on the wall mount and the books that are in the bookshelf. Most of the time personal property will be listed under exclusions, but fixtures can be included too, so be sure you read all of the exclusions, or you might find there’s a big gap in the wall where that custom bookshelf used to be.
Although these are not as common, the listing may indicate what type of financing the seller is willing to accept. Normally a listing will allow for offers with VA, FHA and conventional financing, but sometimes the options will be limited to conventional mortgages or cash only.
The financing exclusion may be an indicator that the borrower is looking for a quick sale, especially if only conventional and cash are given as options for financing. However, it may also be a red flag that the property has some issues that the FHA or VA might require to be repaired, so do your due diligence inspection wise if you see government financing being excluded.
If you’re in a buyer’s market, the rules are different
In softening markets, your patience and your agent’s haggling abilities will determine the winning offer. Here are some tips for making a strong offer in a buyer’s market.
Don’t go too low
Sellers often have a sense of what they believe their home is worth, so an offer that is well below the trend of house price declines is likely to result in an unpleasant brush-off from the listing agent. Make offers based on recently closed sales, or estimates of what you think needs to be done to a house.
Use seller concessions to save yourself money
Sellers may be willing to pay closing costs or finance repairs if your offer is reasonably close to their asking price. If you are asking for a significant amount of concessions, you’ll have better luck getting an acceptance if you offer somewhere in the vicinity of the listed price.
Be prepared for more nos
Since most sellers have been used to hearing the news about how housing has been in a seller’s market for the better part of the last five years, they may be slow to warm to the idea of lowering their sales price. If you get a no, that may not be the final answer.
Keep an eye on the property to see how long it stays on the market. Your offer may look good to that seller if they go another couple months without a bite, so be patient and persistent.
Feel free to add contingencies
One of the characteristics of a buyer’s market is that you have more houses to choose from, so you can be more picky about what you want. If you haven’t sold your current home, you might be able to add a contingency for the sale of it before you buy a new home.
That’s not something a seller in a seller’s market is likely to entertain, but in a buyer’s market you may have more luck — as long you have your house priced to sell.
Buyers’ and seller’s markets can shift quickly, so pay attention as you’re making your offer. The National Association of Realtors recently reported an uptick in inventory, which means buyers have more choices than they’ve had in recent homebuying history.
This article contains links to MagnifyMoney, an affiliate of LendingTree.