How To Create a Strong Offer
by Michael Lam | Jun 19, 2015
A real estate offer is at the center of every property transaction, driving the full motivation behind the entire industry. Without a compelling offer to a seller, there is no incentive to complete a sale, putting both real estate agents and buyers alike in an unfortunate position. In a fluctuating real estate market, especially for those in densely populated and competitive areas, a simple, straightforward offer is more than likely not going to make a difference when there are other buyers clambering to beat yours to the punch.
Many U.S. home buyers, and even many real estate agents, do not understand the fine art of crafting a strong real estate offer. In their limited experience, all offers are made equal. Unfortunately, this is not true at all. It has became clear early in my career that each offer must be a customized effort, specially tailored to each specific transaction. A strong offer can make or break a sale, requiring careful consideration on the part of both agent and seller. In today’s market, there is no room for a one size fits all approach to purchase offers.
Understanding the Real Estate Market
In order to begin examining the ways in which an offer can be used as an effective tool to guarantee, or at the very least increase the chances of, a successful sale, it’s important to understand the current state of the market. In the U.S., 88% of all residential property sales are facilitated through a broker or agent. Although not surprising, most buyers on the market see the benefit of working in conjunction with someone who knows more about the field and understands the advantages to spending time creating a compelling offer. This number is up from 69% in 2001, clearly demonstrating the value of a trained expert in the field.
The majority of homes in the U.S. are purchased with financing, with an average of 90% of the home price funded through a loan or mortgage. Homeowners can, on average, expect to sell their homes for 97% of the asking price; nearly half of home sellers reduce the list price when asked at least once, although almost all would prefer a clean sale without the need for significant negotiation. Across the country, homes sit on the market for an average of 5 weeks, but high-interest markets where home purchases are competitive, desirable properties may turn over in a week or less.
The Seller’s Mindset
Buying and selling real estate is a complicated and stressful time period. Most agents find thrill in the process, but homeowners are less likely to find the exhilaration of a sale quite as intoxicating. Making the choice to put a home on the market, cleaning, preparing, and staging your property, and searching for a new home simultaneously can be at the very least inconveniencing.
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The Holmes-Rahe Stress Inventory, a psychological tool to evaluate stressors and their effects, ranks taking on a mortgage at number 20 and a change in living circumstances at number 28 out of 43 total stressful life events, indicating that the process of selling one home and buying a new one can be an exceptionally influential process for millions of Americans. With emotions running high, getting an offer exactly right can be paramount.
Although receiving a quality purchase offer is an end goal, sellers also want straightforward, fair options that won’t require significant back and forth. Although negotiation is an expected part of this process, it doesn’t mean that negotiation is desired. Sellers are most likely to accept offers close to the purchase price that involve appropriate contingencies, coverage for closing expenses, and an adequate down payment rather than a bare bones offer that will later require additional negotiations.
Cash offers, although rare, are favored by sellers for their simplicity and certainty. If cash is an option, it can be an extremely persuasive tool. Providing a simpler contract and guaranteed coverage for costs, a cash sale can be quicker, easier, and altogether more trustworthy than a financed sale. Most buyers do not have the available assets to do so, but those who do can create a convincing case for a seller on a mission.
Crafting a Sound Purchase Offer
While real estate expertise is highly influential in the process of creating an offer that will be appealing to a seller, so is psychology. A purchase offer should be persuasive, creative, and must offer some incentive to a seller to accept. If a property is lacking in some way, whether in size, location, or upkeep, sellers may be eager to acquiesce, but competitive properties in desired areas require something special.
The majority of purchases in the U.S. are financed rather than made in cash, although the latter is generally the preferred option. Prior to making an offer on a home, evaluate your credit score and your financing options.
Sit down with a bank and secure a pre-approval letter, pull together account statements or certified letters that provide evidence of available cash for a down payments, and assemble a packet that testifies to your financial stability. In the case of an expensive property or a highly-desirable area, winning over a seller is much easier when your resources and means are well-established up front.
Create a Personal Angle
In a traditional sale, the seller puts pressure on the buyer, emphasizing great features of a product that are essential to a great life. Home sales often work in the other direction, with the buyer and his agent working to convince a seller that their approach is the only one worth noting. Getting to know a seller in a professional yet personal manner can be extremely beneficial for a buyer, especially if they are able to match a connection with an adequate financial offering.
Arrange to meet a seller personally or, if the seller isn’t available for a meeting, consider writing a letter. Detail why you are interested in the home, what you like about the home, and the ways in which you plan to maintain the property to the seller’s current standards. Whether you want to be closer to your aging parents or want a big yard for your growing family to play in, honestly appealing to a seller’s emotional connection to a home can be very effective.
If you have a product to sell and receive two proposals, one offering to cover the costs of the sale and the other offering nothing, what would you choose? The process of purchasing a house isn’t as straightforward as buying gum at the gas station, and it often takes several weeks or month to close.
With a continued need for contact and discussion, a buyer who presents himself as adaptable and willing to negotiate is far more likely to draw attention. Make sure you communicate your intentions clearly, reassuring him that you are willing to work with him to make the closing process simple and painless. If you can afford it, consider eliminating contingencies from your offer; giving sellers terms they must meet is not a great way to paint a picture of compliance and flexibility.
Some real estate agents encourage their clients to lowball their offers in the hopes that the seller will accept a lower price outright or will be prepared to negotiate. While this strategy is not inherently bad, a seller who owns property that is appealing to you likely has other interested buyers. If a property has been on the market longer than average, you may be able to wheel and deal, but putting in an insultingly low offer on a desirable property will likely eliminate you from the running immediately.
It’s okay to place an offer slightly under the asking price if you are willing to go higher, but make sure your first offer is compelling enough to be noticed. Savvy buyers may include escalator clauses, or promised to increase a bid if another offer comes in higher. Many sellers appreciate this approach as it shows concrete interest, but other sellers may interpret this kind of action as a sign of undervaluing a property. Make your offer clean, and don’t ask excessive expense coverage out of a seller.
Be Prepared to Act
Seller likes your offer? Great – it’s time to go. When an offer is accepted, it’s time for you to get to work. Set up an inspection right away, and promise results within the week. The industry standard for inspections is roughly two weeks, but this is often unnecessary; most inspections can be completed within 5 days. Do not suggest petty repairs that can be affordably completed on your own, or renovations you do not plan to keep. If you have the budget or the skills for a quick fix, take care of the issues yourself. A new roof may need to be discussed with a seller but a leaky pipe probably doesn’t.
Are the sellers on a time table? Let them know that you understand their schedule and will do everything you can to work with it. If you bid on a short sale, communicate your ability to be patient and prepare for a decision. Being pushy, persistent, or aggressive is often a great way to turn a “yes” into a hard “no” from a previously willing seller.
The process of buying a home is never easy and, unfortunately, can be ripe with disappointments. Far too often buyers believe that a seller is at their disposal rather than the other way around, leading to ignored offers and no chance for a sale. Working with a real estate agent is a great start, but it takes collaboration on the part of both a broker and a buyer to create an offer combining all the elements critical to a seller’s interest.
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There is a lot to consider in the process of searching properties, and the final sale may be a ways down the road. By structuring your offers in a way that is compelling for all parties involved, however, it’s much more likely that your success will come earlier rather than later. Stay flexible, offer an appealing package, and above all else, show your humanity. Selling a beloved property can be emotionally draining for everyone involved, but presenting yourself as a worthy, trustworthy, and reliable owner is an incredible asset that will serve you well throughout your search.
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