What You Need to Know When Writing an Offer on a House

Writing a good offer on a house is all about market knowledge. Unfortunately, in a highly competitive seller’s market, you can submit a great offer and still not get the house. But, writing a great offer puts you in the running and might afford you an opportunity to jump back in if the first contract falls through … and that’s why it’s important to consider the terms of your offer. {Would you rather watch than read? Scroll down for the video version of this blog post.}

What are the terms needed in a good offer on a house?

Price obviously matters. Very few sellers are going to accept a lower offer out of the kindness of their hearts. However, it isn’t ALL that matters. If other terms in the contract are enticing, a seller may accept something other than the top offer … or they may at least give you the opportunity to negotiate the price instead of handing out a flat no.

Payment terms.
We’ve all heard the phrase “cash is king”. And to some degree, it is. It means a quicker close, no need for financing approval, and basically less things that can go awry when trying to get to the closing table. However, we’ve seen in recent months that cash isn’t always beating out a financed offer. If a seller doesn’t require a quick close, a higher financed offer with all the right terms is a win.

Down payment.
One of the ways you can make a financed offer look more appealing is the down payment. A lot of people think down payment is something that only matters to buyers but it sends a message to sellers. The higher the down payment, the more solid the offer looks. A seller gets the idea that you can afford the house and has less concern that financing may fall through.

Appraisal waiver.
Along the lines of available funds, waiving the right to terminate the contract if it doesn’t appraise is really important if you’re submitting an offer over asking. You can promise the seller the moon but if the house doesn’t appraise, everyone’s back at the negotiating table unless you have a waiver in hand. And if you’re submitting a waiver, showing proof of funds is really important. Sellers want to know beyond a doubt that you have the means to make this all happen.

Financing approval.
Depending how the third party financing addendum is written, there’s an out for buyers if they can’t get financing approval. If you want to sweeten an offer up a bit and assure a seller that financing is solid, you can shorten that time period for approval. A year or two ago, we were using twenty-one days for that period. That means three weeks into a contract a buyer could have reason to back out. When the market got more competitive, you wouldn’t see anything longer than fourteen days. But in this ultra competitive market, every term matters. I’ve been calling lenders to find out how quickly they can get approval so we can have the shortest time possible on the offer. We’re often able to write in a five or seven day financing approval period. This isn’t a term that’s sealing the deal for you but when everything else is close, it helps.

Local lender.
Having a local lender is a huge win when it comes to getting an offer accepted. You can work with any lender you want but if you’re working with a big box lender, online or at a bank, the communication can be much more difficult. There’s not always an easy point of contact and you’re not getting hold of someone on weekends. If you work with a local lender, you develop a relationship with them and they’re part of the team. They want you to get that house as much as you want to get that house. They’ll educate you through the process, hop on a call with the listing agent, and go to bat for you.

Earnest money.
Earnest money has typically been 1% of the offer price but by increasing it, you’re showing seriousness of intent to close the deal. If you back out for a reason that isn’t covered by the contract, that earnest money goes into the pocket of the seller. If earnest money is $10,000 on a $500,000 offer, it tells that seller that you’re not walking away for any fickle reasons.

Option money.
Option money and the option period also factor into how good an offer looks but this is a tricky one. Nixing the option period altogether is a decision that has to be made with a lot of caution and knowledge about the house. I’ve recently had clients submit offers without an option period but it’s happening on houses that have a brand new air conditioning unit, a relatively new roof, and no history of foundation problems. And they’re still opting to do an inspection, just so they know what they’re getting into. If you are asking for an option period, keeping the number of days short and increasing the option money amount makes an offer more appealing because that’s money that goes into the seller’s pocket if you back out during the option period. However, use caution because if you put down a pile of money for the option period and the house is a landmine of problems, you just lost some cash.

Title insurance policy.
A couple of years ago, sellers were typically covering the cost of the title insurance policy but in this hot seller’s market, buyers are almost exclusively covering it. This is a fixed cost prescribed by the State Board of Insurance so I can tell you what that will cost, depending on the price of the house, and you can factor that cost into your offer price. 

Another thing to consider is who’s paying for a survey. If the seller has an acceptable survey available, there’s nothing to consider but if there’s no survey, the contract can allot payment to either the buyer or seller.

Closing date.
The closing date is something that can really sweeten an offer. Even without a contingency, many sellers want to close on the sale of their current house before they close on the purchase of a new house. With a cash offer, a quick closing is easy but with financing, not quite as easy. Just like with the financing approval period, there has to be a conversation with the lender to find out whether they can close any quicker or if a standard 28-30 day close is needed. And again, this is where it’s really helpful to have a local lender.

Leasebacks have become increasingly common in this market. A leaseback means the seller is leasing the house back from the buyer after closing. This may be for a week or a month … I’ve even seen listings requesting a ninety day leaseback. In a leaseback, the buyer becomes the landlord after closing and a deposit is usually made by the seller. Whether rent is charged is up to the buyer/landlord but in this current seller’s market, I’m only seeing free leasebacks.

Letter to sellers.
Agents tend to have strong feelings about love letters. And they don’t work in every case. If you’re submitting an offer on a flip that was purchased by an investment company, they don’t care about your letter. They just want cold, hard cash. But if you’re walking through a family-owned home and you know there’s emotion involved, or you feel a connection to that family, write a letter. Some listing agents won’t present them to sellers but some will. I’ve had many sellers comment that a letter was a tally in the positive column for accepting an offer.

Offer presentation.
The presentation of your offer matters and you have no control over this except to work with a good agent. I’ve received many offers that are incomplete and have known errors {I once received an offer for a million dollars over asking price because the agent had made a typo and the buyers didn’t read before signing}. Presenting a clean and clear offer makes the listing agent’s job easier and if you can show right away that you’re going to be easy to communicate and work with, it’s a win.

There are lots of ways to make an offer stand out … and even when you have them all, you might still get beat out on a house. But at least you’ve put your best foot forward!

If you’re interested in buying or selling a house in the DFW metroplex, I’d love to help! Reach out to randi@repeatre.com.

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