Writing An Offer

Writing A Good Offer…

The biggest fallacy in the consumers’ mind is that PRICE is the only important part of writing an offer. Price is only part of the offer and it is important to get as much information about the seller’s motivations as possible in order to write a stand-out offer. In knowing the hot buttons a buyer may better adjust what they are willing to give in order to win. “Agreement” is two party’s meeting of the minds.

Local conditions are a factor that affect your approach, so be cognizant to what degree the market is a neutral, buyer’s or seller’s market.  General factors include Location, Inventory, Affordability, Time on Market, Season, Price Range, as well as Local and National Economy.  Once you have a clear picture on these factors, you focus on the specific locations, age of property, size, updates, obsolescence, proximity to services, taxes, area desirability and perhaps schools.  I all these features, a well-informed buyer can gauge what is important to them and how much they are willing to pay for the most satisfactory home that checks most of their boxes.

So let’s break down the pieces to writing a GOOD offer

  • Price Point – Current comps are an indicator of recent performance, however depending on the market conditions, consider a price point that you can afford and are comfortable at looking 3-6 months down the road of the current local trend. The trend may be rising, neutral or lower prices.  In a hot seller’s market where prices are increasing predictably at 0.5-1% per month like recent years, this may mean that a $300K home will be worth $320K in the near future and will likely sell over asking by a similar amount. In the reverse where prices are recessing, the same $300K home may only go for $280K (or less).
  • Condition – In a hot seller’s market, inventory tends to move quickly and buyers are more likely to look past small imperfections – they minimize the affect of repair costs on their desire to buy that home. In a slower market with higher inventory, buyers can become sticklers for the minutia as they have more homes to choose from.
  • Obsolescence – This does not merely mean age of the home, but the architectural features that may affect the utility and enjoyment of the home. Things like small rooms, low ceilings, closet & storage space, kitchen and bath fixtures, etc can all be very costly or impossible to improve.
  • Micro Location – The actual property location and how it sits on the lot can be very important to value. we have heard the term “location, location, location” in real estate and it really is not just a redundancy to stress it 3 times. Consider the following example:
    1. Location 1 – Beverly Hills adjacent is NOT Beverly Hills… dah! Certain cities and zip codes can have dramatic affect on home value simply by crossing the street.
    2. Location2 – There is such thing as nicer parts of the area, including more desirable blocks or subs, locality to expressways, access to services & schools.
    3. Location 3 – this is more about the physical location in the target blocks or subs. A home on a cul-de-sac, backing to nature or a park, away from the feeder road traffic, privacy, sun exposure, a larger lot, etc.  The where-in-the-sub are you features.
  • Demographics – Realtors are not allowed to discuss demographics as spelled out in the Realtor Code of Ethics and by the federal Government for fear of discrimination of protected citizens. Inside of a detailed CAM, we are allowed to include the 3rd party demographic info in the file for your review. However, it is a best practice to go online and look-up your target area’s demographics, schools, crime and sexual predator data.
  • Availability of Funds – NEVER try to place an offer without proof of funds or lender approval letter unless you want your offer to fall to the bottom of the pile. More important than your offer price is the ability to get to the closing table at the seller’s acceptable price point. Having more funds available than your offer price is not an indicator you will pay more, but it is good indicator that you can afford to make good on your offer.    NOTE: The strongest buyer is almost always a cash buyer – so long as they are not wholesale cash buyers. The next strongest is a conventional loan buyer with 20% or more down. Being “qualified” by your lender for more than purchase price is typically deemed a plus. FHA & VA loans typically have lower or zero down payment programs and may be an indicator that the buyer cannot contribute to a shortfall like appraisal.
  • Contingencies – A contingency is when a circumstance must be met in order to proceed. If you are buying home where the lender declares that you must sell your current home in order to buy the next home, whether or not you submit a contingent offer addendum, you are a contingent buyer whether you like it or not. The seller’s agent should request a contingency addendum and inform their seller what that means to their listing status. The home should remain active and note that the sale is subject to buyer contingency of selling their home. Without the contingency agreement, a buyer could lose their EMD.
  • Earnest Money Deposit – Submitted with offer to demonstrate good intensions. Protected by contingencies
  • Appraisal – Whether getting a mortgage or not, it is always a good idea to get an appraisal. This is a contingency of financing.
  • Inspections – The purchase contract grants the buyer rights to satisfactory inspection within a time period following the date of agreement. Review of Seller Disclosures prior to offer is important as the existence of a condition may not give the buyer any wriggle room later. Other findings may require remedy that may include repair/replace, seller credit, or price reduction and may result in cancellation of the purchase contract. Be cautious when using the inspection as a negotiation tool.
  • Timing Of Close – How long will it take to get your loan or funds together to close? The seller timing can affect their response to your offer, and knowing the “why” of their timing can be of great benefit in your offer. In my experience, most sellers would prefer to close sooner than later and post-close occupancy may be important to them. Others may be thinking about tax benefits, waiting on a holding period, divorce, relocation, around company or government benefits, a trust, etc.
  • Post-close Occupancy – Including availability for the seller to close and stay in the home for a period of time can be extremely valuable to a seller. One very strong reason for your buyer agent to make contact with the seller’s agent before you write!

It is important to remember that the seller’s wants and needs will come into play, and that those are every bit as valid to them as your wants and needs are to you.  A “Good” purchase agreement and smoother road to closing will come when there is a meeting of the minds. In a tighter market, the Seller may enjoy more controls and the Buyer must bend perhaps more than they like.  In the Buyers market, the Seller may have to bend more than they like.  In the balanbced market, negotiation can be both easier and harder depending o the principals perceptions.

In ALL cases, having a refined list of needs and wants prioritized for your must haves will put you in the right frame of mond to win the home most suited for you. So, do your home work and