In very active real estate markets, Buyers can feel like they are participants in a surreal TV game show “Can YOU Buy A House?” In this show, contestants madly scour computer screens to find a home that meets their needs and once located they race to look it over and then make an offer which is sent to some unknown third person (Sellers agent) who is tormenting the other contestants (oh yes there are other Buyers to compete against) by making counter offers and demands for highest and best offers where Buyers frequently feel like they are bidding against themselves. It is extremely exciting and lot’s of fun for the winners. The losers get no parting gift and usually end up feeling that they have failed.
The reality is, it’s not a game show. Usually it’s not theatrics, but economics and human nature that drives the process. The economics are simple supply and demand. In several price ranges and locals there is not enough available inventory to satisfy the number of Buyers. When that happens, sellers try to get as much money as possible for the property they are selling. (greed??) It’s a very predictable human response. Nobody wants to leave money on the table and in fairness to the Selling agent they have a fiduciary responsibility to the Seller.
While it doesn’t have to be contentious it is by nature adversarial. The Buyer and the Seller are working from juxtaposed positions and trying to come to a “meeting of the minds” so that the transaction can occur. It can feel like the Seller has all the power in the process. While the Seller may have more choices the only power they have is what you give them. How you manage the process of making an offer can help you mitigate the uncertainty and improve the outcome.
Preparation – Being fully pre-approved for the financing is critical. This process can take an hour or so but it is preferable to the “on-line pre-qualification” that usually states it is contingent on verifying your income and employment status. Make sure you are a strong candidate from a financing position. Most Sellers are not looking for uncertainty in the offer they accept particularly if they have options.
Terms – Things like earnest money, closing date, financing type, down payment, contingencies and price make up the deal. Have your agent speak with the Listing Agent prior to making the offer. You may get some insight into what is critical for the Seller. I actually lost a deal last year because of the closing date. The Seller accepted another offer that had the closing date two weeks later than my Buyers offer. That date fit better for the Seller and even though it was a slightly lower offer the Seller accepted. Earnest money is the Buyers “good faith” gesture to the Seller that they are serious. You may want to consider making a portion of the earnest money “non-refundable” That stance may present you as more serious than competing offers. Some types of loans (usually government backed) require more oversight and uncertainty for the Seller. For example, an FHA loan requires certain conditions in the house and if the appraisal comes back low it stays with the property for six months. Contingencies are also problematic. Sale of Another Home, Closing On The Sale Of A Home, Inspection are all types of contingencies that can occur. Some contingencies can’t be avoided but keeping things simple may give you a leg up. I am not suggesting nor would I recommend that a Buyer purchase a home (including new homes) without an inspection. The key is to keep the inspection period as short as possible.
I didn’t mention “Sellers Contribution To Buyer Closing Cost”. This is where the Buyer asks the Seller to contribute an amount toward the Buyers closing costs. Usually this is a percentage of the sale price. Any amount the Buyer asks for reduces what the Seller will get at the closing. If, as the Buyer, you need the assistance you may want to consider increasing your offer to offset the amount. In effect, financing your closing costs.
I usually recommend to Buyers that they present as “contingent free” deal as possible. There is a reason that investor buyers with cash, non-contingent (not even inspection) quick closing offers are so attractive. There just isn’t much that can derail the transaction.
Oh yeah, PRICE. (The eight hundred pound gorilla in the room) This may be where you throw rocks at the screen. I recommend that you make YOUR FIRST, YOUR BEST OFFER!!! When there is stiff competition there is no point messing around. If you make your best offer you don’t need to get caught up in “highest and best” you’re already there. And if your best wasn’t good enough then it doesn’t matter, right? Here is where the “yeah but” comes in. Yeah but what if they would take less? Yeah but what if they want to negotiate more? Yeah but, yeah but, yeah but. This is where the ping-pong effect comes in. To play this game you must be ready to have someone with a paddle put your life in play and be satisfied with the back and forth. Nonsense!! Why give up the control.
If you make your best offer (an offer you are happy with and can live with) the process is over. At lease for you. The Seller can try and escalate the price or use your offer to get higher bids but they could do that anyway. You’ve decided what you will pay and the terms you are willing to accept. If the Seller’s actions result in you paying more than your best offer, it wasn’t your best offer.
So buying a house can be stressful. It is considered a life event (moving) How much stress the process has on you is mostly up to you. Now I’m going to go watch my favorite game show…….
Go ahead Vanna turn the letter…..…