June 2012 Blogs

Buyers: 4 Secret Ways to Beat Other Offers

To every thing, the songwriter says, there is a season. (Turn, turn, turn.) This Spring, the real estate market in many places seems to be thawing out of an extended winter straight into a hot market of buyer activity. The upshot for sellers is great: shorter times on the market, more certain sales and higher sale prices.

But for buyers, there’s a somewhat scary new implication of this season change: multiple offers.

Upon learning that a home you’re trying to buy gets more than one offer, it’s instinctive to have one of a few kneejerk reactions:

  fail to take the situation seriously and go in low
  blindly throw money at the sellers (never a good move), or
  panic/flail your arms/cry.

None of these reactions, however, will get you the result you want: the house.

Making a victorious offer is more art than science. Sellers may be fixated on their bottom lines (sensibly so, if you ask me) but there are a number of other seller priorities that buyers can address in optimizing their offers. Here are some less-obvious strategies for besting the other wanna-be buyers who are vying for ‘your’ home:

1.  Offer more than asking (if the market data justifies it).  It’s entirely possible that you’re shaking your fist right now, yelling something like: “You said these were ‘secret’ strategies!” Allow me to explain: offering more money *seems* like a super obvious way to beat out other offers, but you would be amazed at how many bargain-seeking, recession-trained and novice buyers simply don’t do it. Many think they’re scoring a deal by making low offers, even in the face of competition.

This ignores two essential truths of home buying:

Essential Home Buying Truth #1:  A bargain price does not a deal make, if you don’t get the home.

Essential Home Buying Truth #2:  If you lose out on five homes before the market educates you to get ‘unstuck’ from your rigid, lowball offer strategy, you might end up facing even more competition for fewer homes a few months down the road - and end up spending even more to finally score a property.

Also note that my advice here is to (after consulting the recent sales data and talking with your agent and your mortgage broker, of course) offer more than the list price - not just more than your earlier plan. See, when they get wind that there’s going to be competition, some buyers simply tweak the price they offer relative to what they had planned to offer before they received that information. Since we’re still at a relatively early spot this market recovery/multiple offer phase, lots of buyers are making this mistake of offering something more than they would have a few months back, but still less than the asking price. As such, you may be able to best other offers by just going in with an offer just a touch over asking.

Talk with your agent about this - and involve your mortgage pro and financial advisor up front to ensure you don't overextend yourself. In more recession-proof areas, you may need to go so far over asking that you'll need to adjust your house hunt price range lower to be able to compete. And, of course, the recent sales data and your personal budget must all justify whatever amount you offer; otherwise, you’re just cruising for a bruising down the road when it comes time to have the place appraised - or make the monthly payments.

Accordingly, it behooves you to watch and work through the comparable sales data very closely with your agent, including the current trends in prices - if they are on the rise, you might need to offer even more than the house next door just sold for to “win.”  You can look to the current list-price to sale-price ratios to see just how far over asking winning offers are going, on average.

If you find the mere thought of offering more than the list price exasperating, keep things in perspective. Know that smart sellers are being very strategic and assertive, listing low to create an auction atmosphere and churn up multiple offers (something we’ll discuss at length next week, in Part 2 of this series). Don’t be duped into thinking you can get away with a low offer because the asking price seems like such a bargain. (And by the same token, don’t throw money at a place that is overpriced compared with the rest of the market.)

Some of these seemingly lower-priced homes are getting 20, 30, even 50 offers in some areas (no joke!). The victorious buyers are those who are offering amounts backed up by the home’s fair market value, as determined by the very, very most recent sales - not sales from six months or a year ago.

2.  Max out and show off your close-ability.  Yes: sellers care about getting top dollar for their homes, so offer price is the primary factor that makes or breaks your offer. However, sellers and their agents are uber-aware of the flip side of Essential Truth #1 (see above): a great deal that doesn’t close is no deal at all.  They are also on high alert from the last few years of very high contract cancellation rates, so sellers and listing agents will give top priority to offers that have both (a) strong prices and (b) a strong likelihood of closing (close-ability, in Tara-speak).

For you, as a buyer, to boost your offer’s close-ability, it helps to be informed about the most common deal killers:

    low appraisals
    mortgage approval failures, and
    condition problems revealed by inspections
are the top spoilers that ruin home sale transactions that are already in contract.

If you’re going to try to win or at least compete with other offers on close-ability, it’s critical that you strike an appropriate balance between protecting your own interests and aggressively assuring the seller that you have done everything within your power to minimize or eliminate the risks that you will later have to back out of the transaction.

With the help and expert advice of your agent, mortgage pro and/or attorney, consider strategic moves like:

    shortened contingency periods (which mean the seller will get certainty that you’ll close the deal sooner than later)

    documenting that your over-asking offer price is backed-up by nearby comparable sales (minimizing the risk of later appraisal problems)

    making an all-cash or high-down payment offer (if your resources allow)

    offering to buy the home as-is (so long as you retain your inspection and loan contingencies) or even

    obtaining inspections, appraisals or repair bids before making an offer and waiving the relevant contingencies up front.

CAVEAT:  I put these strategic suggestions out there to let you know that they are possible and know that they are seen as offer strengths by sellers. They are not always advisable and, in some cases, are actually unwise and inadvisable, in that they waive rights you might need to exercise in the future depending on the property and the facts of your finances and your life. Please, for the love of all that is sacred, do not incorporate these aggressive offer tactics without looking to your experienced, local real estate, mortgage and legal professionals for advice on their implications for your personal situation.

3.  Work with a well-respected agent and mortgage pro.  If you’re house hunting in a desirable neighborhood or one with an insular community of agents, it can be advantageous to work with an agent who other agents (read: the seller’s listing agent) know and love - or at least one they have heard of and respect.

Collectively, the buyer’s agent and mortgage broker have a huge impact on how smoothly a transaction goes - and, sometimes, on whether it closes at all. No seller wants to entrust their most important transaction - and no listing agent wants to trust their livelihood - to someone they’ve never heard of and/or who has no track record of getting deals to close, smoothly: especially when they have many alternative offers from reputable agents they know they can trust to get the deal closed.

So, working with a well-known agent and a well-known local mortgage broker can certainly help give your offer a boost against other would-be buyers. Experience in your area and activity in the local real estate community are good indicators.  Even if the listing agent doesn’t know them personally, you want them to be able to ask around and hear good things from the other agents in their office or agent associations, or to at least have heard good things about working with your agent’s brokerage.

With respect to mortgage brokers, it’s especially helpful to work with one from a well-known, local company. At least consider authorizing yours to talk with the listing agent via phone to discuss the strength of your qualifications and their own recent experiences working with appraisers and underwriters with the listing agent in a phone call (without divulging any truly confidential financial information), if the listing agent chooses to reach out.

By no means does this exclude agents who are newer to the business. Working with an agent who has a polished website and smart activity on various social media channels or one who can provide the lisitng agent with a list of recent closed transactions they have worked on may help the seller and their agent feel more comfortable accepting an offer if your agent is new - or new to the area.

4.  Express your love for the home.  I’ve written a lot about what I call the Seller Love Letter, a tool homeowners can use to ‘infect’ interested buyers with their own affection for the property. But here’s a tip from the last peak of the market: buyers can write love letters, too!  Allow me to be frank: if someone is offering $50,000 more than you are, chances are slim that you’ll beat their offer out with a letter or a YouTube video of your trio of pugs or smoke signals, no matter how poignantly they:

    tell the sellers about yourself or your family
    express how much you love their home and
    paint the picture of why it would be such an ideal setting for the next phase of your life.

But - such a love letter may not hurt. In fact, it might even score you a counter-offer in a situation where the seller might otherwise have just outright accepted another, much-higher offer.  And your offer price is close or identical to your competitor’s? It might just score you a home.

Top 10 Home Improvement Myths

Not all home improvements are created equal. Even in a seller’s market, it’s important that homeowners make the right investments that will yield higher returns. As you guide your clients toward a profitable sale, make sure you’re an expert on the top 10 home improvement myths so you can prevent your clients from believing them.

Father’s Day is next week, and Dad is sure to get a few tools or gift certificates to a home improvement store that he’ll be itching to use, so make sure your clients are in-the-know before then!

1.  Any remodeling project will add value to your home.  While many remodeling projects will add value to a home, some can be seen as a negative by future buyers. For instance, combining two smaller bedrooms to create one larger bedroom may better fit one homeowner’s lifestyle today, but it may cause the home to lose value in the eyes of a future buyer who needs the two separate rooms.

2.  Buying the highest-quality materials attracts more buyers.  Installing high-end materials may seem like a wise decision, but it can backfire. For instance, using the most expensive tile in a bathroom may create an impressive appearance, but value-conscious buyers may opt for a more affordable home if the seller has over-improved compared to others in the neighborhood.

3.  Adding square footage always adds value.  A better way to think about this statement is to insert the word useable into the sentence. Finished attics and basements – even if considered liveable by loca l standards – may not be attractive to a buyer if they are not finished to the same standards as the rest of the home.

4.  Colors and textures – safe and simple is better.  Keeping a home “vanilla” so buyers can choose their own style and décor might be a safe bet, but it ignores the fact that most buyers just don’t have the ability to visualize the home differently. Without splashes of color and mixtures of texture, sellers can lose value to others that have taken the time to consult with an interior designer.

5.  Inside improvements are better than outside improvements.  Not necessarily. If a home’s exterior has been neglected or doesn’t offer a good curb appeal, a buyer might stop there – and then the seller’s efforts on on the inside may not net them any more dollars. To get the biggest bang for their remodeling buck, sellers should start from the outside and work their way in.

6.  Adding a bedroom is better than adding a bathroom.  It depends on the starting point. If a seller only has one or two bedrooms to start with, adding a bedroom before adding a second bath is probably a wise choice since most buyers are more attracted to three-bedroom homes. On the other hand, if the home already has three bedrooms and only one bath, the sellers’s next investment should probably be in a new bathroom.

7.  Paint hides a multitude of sins.  Dry rot? Fungus damage? Mold problems? Carpenter ants? Termite issues? Nothing a can of paint can’t fix, right? Wrong! Not only does this practice violate disclosure laws in most states, it can set sellers up for liability after the sale, as most buyers will want the sellers to foot the bill for these hidden issues.

8.  Converting a garage to living space is a great trade-off.  Nope. A garage conversion is almost always viewed negatively by future home buyers unless the sellers replace the lost garage with another parking and storage space of equal size.

9.  Sellers can save money by doing improvements themselves.  For some homeowners, wiring a new lighting fixture or plumbing a new dishwasher is a no-brainer, but for others it may end up costing more later if they have to have the work redone by a professional. Another consideration is local and state laws regarding remodeling work: In many states if a buyer has purchased a home to remodel and resell, they must either hold a contractor’s license or hire a contractor to do the work for them.

10.  Pools add value to your home.  This is only true in areas where pools are must-have amenities. In most areas of the country, pools have more limited appeal – and the idea of maintaining a pool for ten months out of the year when it can’t be enjoyed won’t appeal to most buyers.

Knowing these top home-improvement myths will allow you to help your seller clients choose the right remodeling projects. But don’t stop there. To keep your pulse on the amenities that are coveted most in your market, talk to local remodeling professionals, contractors, and home-improvement specialists on a regular basis.

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