All buyers want that perfectly-located, magazine-worthy dream home. Such properties quickly generate multiple offers in very short time, but only one of those offers succeeds — and you want that offer to come from your buyers.
To ensure that happens, you’ll need to start by educating them on what a seller‘s market requires them as buyers.
Homebuyers often think their first step is to find the right house when in reality they should be focused on financing, which includes defining how much they can reasonably afford to pay for their dream home.
After financing is in order, your buyers should prepare to jump in with a strong offer once they’ve found the right home, and it should contain these five elements:
1. Address seller’s anxiety
The strongest offer will address the sellers‘ anxieties over your buyers’ financial capability.
Because a cash offer eliminates sellers’ stress about appraisals and loan approvals, “cash is king” with most sellers. So find out upfront if it’s possible for your buyers to offer all cash.
Many potential cash buyers currently own a home and anticipate using the proceeds of its sale to purchase another. The wise course for such buyers is to do a preliminary home search to ensure that what they want exists. Once that issue is resolved favorably, encourage your clients to sell their current home as soon as possible, then explore transition housing options in case they don’t immediately find another home they truly love.
Moving twice is a pain, but selling one property while trying to find its perfect replacement (with a moving truck arriving on a short timeline) is beyond stressful. They need a backup plan.
Even buyers who are qualified for a loan and planning to finance their home purchase might have options that would enable them to offer all cash. Ask them. Perhaps, for example, their parents — or another generous source — could step in as co-buyers. Then, once your clients have closed on their chosen property, they can arrange a loan secured by the property to repay their co-buyers.
If making a cash offer isn’t feasible, make sure your buyers’ lender has had its underwriters approve the buyers’ credit at a loan level in line with — or slightly above — their target purchase price.
Mortgage pre-approvals instill greater seller confidence than standard prequalifications because all the buyers’ required documentation has been submitted and lender-approved.
The lender can verify the amount your buyers can afford to pay for their new home — and most will also verify in their pre-approval letter that buyers have funds to close.
2. Start with your highest offer
Strong buyers start with their highest and best offer, beginning with a price. The highest offer isn’t always the one chosen, but in a seller’s market, offering less than list price isn’t a winning strategy.
Before you begin discussing the offer they wish to make, pull together the comparables (comps) that support the list price and prepare your buyers to offer over asking if they really love the house. (The listing agent probably has the comps he/she used to price the property and may be willing to share them.)
During your discussion of offer price with the buyers, you might ask how badly they want the house and how they would feel if they lost it over a few thousand dollars. But if they insist on “trying” a lower price offer — especially on a property that suits them perfectly and that has just come on the market — prepare them for an outright rejection.
Buyers usually only have to lose out once or twice to start believing your advice may actually be worth considering.
3. Include seller wants
Before preparing your buyer’s purchase offer, have a conversation with the listing agent about elements — other than price — that might appeal to the sellers.
Do the sellers want a quick close or a more leisurely one? If they’ve specifically excluded items from the sale, don’t ask for those things. But if something isn’t excluded, you can inquire about seller preferences in regard to taking or leaving items such as TV mounts, extra paint, gardening equipment or even pieces of furniture the sellers might find inconvenient to move.
Incorporate this information in the purchase agreement.
Never underestimate how loudly money talks. To demonstrate how serious your clients are, nothing says “we really want this house” like a sizable down payment coupled with a substantial initial earnest money deposit. If the buyers decide the property isn’t right for them after all, they simply need to release the contract before their final contingency release is due to ensure their earnest money is not at risk.
To further entice sellers, make sure your buyers’ purchase offer verifies that the property is being sold as-is (do it even when default language to that effect appears in the contract).
Even then, take into consideration that the longer sellers have to wait for inspection and loan contingencies to be released, the more uncomfortable they get. You can help alleviate some of their discomforts by accelerating the timeline for inspections and that pre-approved loan.
Your clients may have to pay a rush fee for the appraisal, but that relatively small additional cost can buy a significant amount of seller goodwill.
Your buyers can further ease sellers’ minds by releasing the appraisal contingency with their offer if possible. Every agent and seller lives in fear of a low appraisal. Even when a property is properly priced, a fast-moving seller’s market may not provide enough solid comps for the appraiser to value the property at the agreed-upon sales price.
But if the buyer releases the appraisal contingency with their offer, the seller has less reason to fear a low appraisal. Such a release can only be offered by buyers with sufficient funds to pay any difference between appraised value and the purchase price. But since that ordinarily only amounts to a few thousand dollars, it may be a risk your buyers will happily take for the right house.
Finally, if your buyers can close and give sellers a little breathing room to complete their move — at no charge — that may well address seller worries about whether they can actually accomplish a move between the time all contingencies are released and the sale closes.
4. Prepare to deal with inspections and repairs
In an as-is sale, buyers must be realistic about inspections and repairs. No house — not even a new one — is perfect. And the more competitive the market, the less inclined sellers are to make repairs, especially to nit-picky minor flaws.
Educate your buyers that the purpose of inspections is to verify sound condition and to point out items that may need replacement or repair down the line.
If the inspections reveal significant unknown defects, reasonable sellers may lower the price if neither they nor their agent were aware of those problems. But buyers must understand that sellers are not required to fix anything, so it’s better to not ask for a repair unless they’re prepared to walk away if the seller declines to do it.
5. Attach a cover letter
Always send your own personal cover letter to the listing agent with your buyers’ offer. First, thank the agent for chatting with you about the sellers’ needs. Then, briefly describe the buyers and their enthusiasm for the property; the points of their offer designed to address the sellers’ needs; and any flexibility buyers may have on price, timing of the close and so on.
Be sure to reiterate that your buyers understand the sale is as-is, and they won’t be nickel-and-diming the sellers for minor repairs. If your buyers want to send a letter to the sellers, that’s fine; they rarely influence sellers, but they do no harm unless buyers rave about a property but submit a lowball offer. That ticks sellers off.
If your buyers’ offer follows these guidelines, but another buyer’s offer beats theirs, you and your buyers will at least find comfort in knowing everyone did their very best. Additionally, you can prepare them in advance to accept a first backup position in a multiple-offer situation.
Deals fall apart for all kinds of reasons that may not affect the desirability of the house for your buyers. So talk to the listing agent to see if the sellers would entertain a formal backup offer if your buyers’ offer fell just slightly short.
If your buyers get their backup offer accepted, that gives them the right of first refusal should the initial buyer fail to perform. Plus, they can keep looking. Their dream home is bound to materialize — one way or another.