Ask Home.Loans: What Makes a Winning Offer on a Home?
This week, we're answering the all-important question: what makes a winning offer on a home? Especially if you're a first-time homebuyer, you're probably curious to know what (if anything) you can do to increase your odds of securing your dream house. Our colleague, Kristi Waterworth, former real-estate agent of nine years, is here to answer that.
Nationally, the market is extremely tight. Although housing permit applications are up year over year, existing housing remains a difficult market. There are simply too few homes and too many buyers in most areas, causing prices to rise and the power to be placed solidly in the hands of the sellers themselves. Generally, a balanced market is what you want, but it’s not what we have at the moment.
That’s excellent motivation for a buyer to want advice on a winning home offer, because there’s a lot of competition out there right now.
In my opinion, there are four elements that make up a really good offer:
- Speed to close on your house
- Reduction of friction
- Proof of financing
- Few additional requests
Let me break it down part by part.
Speed to close.
This is fairly self-explanatory. The sooner a buyer can close, generally, the better. The one time this will backfire is if your seller is actually hoping for a bit more flexibility. For example, they may be needing extra time for a new construction home to be completed. Your agent can ask why the seller is moving, this will help you figure out which timing strategy is best.
Reducing friction.
Don’t get hung up on the small stuff. You want there to be few reasons for the seller to say “no.” It’s just like selling anything, in this case, you’re selling your offer. You want to create an easy offer that includes few addendums, requires only the necessary inspections and so forth. Make it easy. Grease the wheels.
Proof of financing.
This is the biggest thing. Instead of just having a pre-qualification letter, get a pre-approval. Go the distance, prove to your seller that you are really serious. When a seller gets two offers, one with a preapproval and one with a prequalification, they’re far more likely to select the buyer that’s ready to go, rather than the one that’s still trying to get their act together.
Few additional requests.
It’s fine to ask for one or two things, like for a seller-provided appliance or paid closing costs, but don’t get too eager. Your seller is going to want the contract that is easiest and requires they give up the least.
Best Bargaining Practices
When you’re making your initial offer, everyone will give you different advice: offer more than the selling price, offer significantly less than the selling price, ask for concessions, don’t ask for concessions. In a seller’s market, you don’t have much of a negotiating position. If offers above the sales price are normal in that market, then make the offer you need to make. The house you’re buying is not a financial instrument, it’s your future home and the place you’ll spend making memories.
The market rises and falls on a whim, there are no guarantees that a house you buy today will retain its value tomorrow. But it will continue to be your home. Consider what it’s worth to you to purchase that piece of real estate, then decide how you’ll approach it. If you plan to live there long term, the value will almost certainly rise enough to cover your purchase price. Anything beyond that is icing on the cake.
What you should never do, in any market, is to send an insulting offer. When you offer, say, 15 percent less than the asking price, that seller is already done with you. Don’t even bother. Don’t kill the tree. When you’re asking for concessions, this goes doubly. You’re already getting a discount on that home, you’re just getting it in the form of closing costs. This is the same net result to the seller, so try to see it from their perspective.
Above all else, negotiate on your home price with a sense of fairness. Research the neighborhood (your agent can help with this), see what houses are worth there. Then make your offer accordingly. If you and the seller can meet in the middle, this is the very best kind of deal. Everybody’s happy!