Making a purchasing offer is the most important step in your home buying process. This is the step that transitions you from planning and researching to action taking phase. In a market where a desirable home typically gets multiple offers, you need to go extra miles to create stronger impression for the seller in order to win over the deal unless you are willing to put out more cash, I assume you don’t. So let’s look at how we can make the offer stronger
Inspection Contingency:
The meaning of inspection contingency on the purchase contract is designed to protect buyers from buying a bad house. This means that the buyer has the freedom of doing inspection on the house within given number of days, if the result is not to the buyer’s liking, buyer can back out risk free. Removing the inspection contingency means you are willing to risk your deposit when buying this house regardless what the condition of the home is upon your own investigation.
A lot of the seller’s in today’s market already spend money doing their inspection and termite before putting the house up for sale. The reports are available upon request. The inspections are done by third party companies that are completely neutral. The seller’s intention is to disclose everything about this property so that the buyers are well informed before making an offer. Upon reviewing the inspection report and getting all your questions answered by real estate professional, if you feel you still want to make an offer, one good way of making your offer stronger in the eyes of seller is by removing inspection contingency on the purchase contract. Because the inspections are already done by the seller, if you want to do your own inspection, which you certainly can and will pay for, you will still contract same kind of company with neutral stance, it is rare to discover new major things that the seller’s inspection couldn’t discover. However though, unless the property inspection comes back with something more serious, such as issues about foundation, sewage, roof etc, that you feel that a second opinion is necessary, by all mean go for getting your own inspection.
Some seller’s however, requires all their buyers to include inspection contingency on the contract. They are certainly smart too. As you know, most of the lawsuits in the U.S are when buyer sues seller. Why would buyer want to sue seller? 99% of the time is because buyer bought a bad house and felt that the seller didn’t disclose everything. No matter who is likely to win in most of these cases, its hassle that nobody wants to go through. Therefore, there are smart sellers out there that insist buyers to have inspection contingency on the contract when submitting the offer, some of them even would go so far as to pay for your home warranty for 1 year. Not only they are motivated seller, they are attracting better buyers while avoiding future potential hassles. If that’s the case, leave the contingency on.
There are also sellers that just don’t provide anything. It could be a distressed home and the seller is already broke, whatever reason might be. If there is no inspection provided, then do your own inspection and factor the cost into your offer price. If you are a seasoned real estate investor, there are other things to look at too, but if you are a first time home buyer, protect yourself when necessary.
Appraisal contingency:
When you are borrowing money from the bank to purchase a home, the bank has also made investments and therefore, they want to know how much the home really worth from licensed professional called appraiser. Sorry, banks don’t go by what Zillow says about the home value. If the appraised value is lower than what you offer in the contract, you can either back away from the purchase, or you pay the difference out of your pocket to continue the purchase. The bank will only loan you a percentage of the appraised amount. In order to back away, you need appraisal contingency checked on the contract when making an offer.
When making an offer that’s above the asking price, the seller knows that it is likely the home may not appraise your asking price. But since there are many other offers that are also biding higher, the seller has no problem with that. There are enough buyers out there that are willing to pay more than the home’s worth, seller’s job is to find the most solid offer, that’s it. So if your offer is much higher than the asking price, running the risk of not getting the appraisal, with appraisal contingency and the total amount on your proof of fund shows you are barely making the down payment, in the eyes of the seller, that’s a weak offer no matter how much higher your offer price is. Your likelihood of backing out of the offer is very high if the home doesn’t appraise and the seller doesn’t want to risk with you.
Whether you should leave the contingency on or not depends on your situation, how much do you want to push for getting the house, and most importantly, have a holistic strategy which your agent plans for you. If you are going in with no appraisal contingency, it only means that you can’t use appraisal as a reason to back out without risking your deposit, but you have to look at your whole game plan to see what other ways you can back out that’s more reasonable and doesn’t trigger seller’s red flag. This is something a skilled agent can plan for you. At my office, we always try to communicate with the listing agents beforehand in order to convey the most insightful information to our client before putting anything on the paper, that way the buyer knows exactly what to do to get a house.
Loan contingency:
Loan contingency is another protection for buyers that if the loan doesn’t get through, the buyer can’t afford to buy the house anymore and therefore walk away. Loan contingency is very common among buyers because this is the most nerve-wracking experience. Therefore, the buyer that is willing to go without loan contingency shows higher financial ability and scores higher in the eyes of the seller. High risk high reward. This is particularly important if you are competing against all-cash buyers and still want a chance.
I don’t blindly tell my clients to remove all their contingencies because my first responsibility is to protect the client. So unless you are absolutely sure, don’t go in without loan contingency. However, what I suggest is talking to your lender and find out what possible scenario that may occur that will affect your loan application. Is your situation very common and straight forward? Or are you having complex finance obligations? Is the property you are buying eligible for the type of loan you are trying to get? Is the property in good condition or does it have issues that will stop the lender from lending (like no roof)? Talk to your lender.
I always make sure to have the lender contact the listing agent as well and explain to the listing agent the strength of your offer. In a multiple offer scenario, you need to go extra miles to convey your financial strength of buying this home if you can’t go all-cash.
Make your term more accommodating to seller’s needs
Seller is not only selling the house, the seller also want convenience too. Make it easier for seller to move out, offer seller rent back. Show the seller you are flexible and are willing to accommodate. I would even go by offering to pay certain closing cost that was originally seller’s obligation by custom.
Meet the seller
This may not be done in all cases, but if the home you are buying is owner occupied, see if you can find a way to introduce yourself to the seller. Have a good conversation, make them remember you by adding personal letters and picture in your offer package. If you find out certain things about the seller, like the seller is a baseball fan because you can see his pictures with MLB athletes, or the seller collects cars, or the seller has 2 children that are about the same age as yours, etc, bring it up and find ways to relate to that with your own life experience. This is all about adding more impressions to the seller.
Work with well-known real estate agent
Real estate world is a big world, yet surprisingly it is also such a small world. Real estate agents all know each other in some way or another. An agent with good reputation is much easier to help you get your foot in the door than an agent with no reputation. An agent from a branded company has more advantage than agents from small local brokerage, if all else is equal. So get help from a big agent, or work with someone who is in the same team led by the big agent, it will give you an extra edge.
In summary:
While there are many ways you can do to make your offer stand out, what gets your offer accepted is still mostly price and terms. When price and terms are equal or closed enough among all competitors, all these extra other things you do will be able to shine through. Sometimes, knowing the competition you are facing, it may be wise to shoot for a counter with your initial offers instead of expecting a direct acceptance. Nonetheless, depending on how serious and aggressive you want