Creating A Strong Offer

Buyers often focus on the sales price when making an offer.  But, sellers look at the big picture when deciding which offer to select.  They factor in: closing date, early occupancy request, inspection contingency, financing contingency, requests for personal property, closing cost assistance, size of earnest money deposit, and of course sales price.

The closing date is an important factor for the seller.  If the home is vacant, they probably prefer a quick closing.  Every day the closing is delayed, costs the seller prorated payments for the mortgage, interest, county taxes, insurance, utility bills, and HOA dues.  A vacant home is also a target for vandals.  There could also be a fire or burst water pipe.  Conversely, a seller may also prefer a delayed closing date.  They may need extra time in the home to close on their next home or if their report date at their next job is still a few months away.

Often a buyer needs a place to stay while they are waiting for the transaction to close.  The buyer can request to move into the home early to save on paying for a hotel.  This is called “early occupancy”.  Most sellers prefer not to allow this.  The seller is still responsible for damages until the deed transfers to the buyer.  Requesting early occupancy will weaken your offer.

Most buyers include an inspection contingency as part of their offer.  This can cause a lot of headaches for the seller.  The buyer has the option to back out of the transaction, request a reduction in sales price, request repairs, or request further inspections.  This inspection contingency can drag things on for days or weeks until both parties have a meeting of the minds…or it could potentially kill the entire transaction.

A cash offer is a very strong offer since it offers minimal obstacles to closing.  But, most buyers will have to use a bank loan to purchase the home.  A government backed loan (VA, FHA, or USDA) offers more complications since they have strict appraisal and underwriting standards.  And, whenever you involve the government, expect a few more days or weeks to close.

Often personal property is involved with real estate transactions.  The seller may be insulted that you are asking them to include personal property.  But, you may actually be doing the seller a favor by requesting a boat, washer, dryer, or furniture be included in the sale.  They may be moving to a location where they have to need for a boat.  They may be moving to an apartment where there are no washer and dryer hookups.  They may be downsizing to a smaller home and they have to get rid of some furniture.  Be very careful with asking for personal property.

It is a struggle for many buyers to save funds for a down payment and closing costs.  One option is to ask the seller to help pay for your closing costs.  The seller does not actually “pay” this expense up front.  The funds come from the proceeds of the sale.  So essentially it is like asking for an equivalent price reduction.  If you are competing against another offer from a buyer that is not asking for closing cost assistance, your offer will be viewed as the weaker offer.

A formality when purchasing a home is to make an earnest money deposit.  These funds will be used towards the transaction at closing.  Many sellers prefer to make a small deposit since it ties up less of their money.  But, this can be a warning sign to a seller that you are not committed which will weaken your position.

And of course, the sales price is important.  Everything else being equal, sellers will always pick the offer that nets them the most.  This is especially true with new home construction.  If a builder sells a home for too low of a sales price, from that point on all future buyers will demand the lower price.  Usually builders prefer to keep the sales price high and instead offer free upgrades or closing cost assistance.  Once the sale is final, they can use that sales price as a starting point for future buyers.

There are plenty of things to consider when making an offer on a home.  Every buyer and seller will have different circumstances.  The seller will not always accept the offer with the highest sales price.  Take this into consideration if you have factors that weaken your offer like: a closing date the seller dislikes, an early occupancy request, inspection contingency, using a government backed (VA, FHA, or USDA) loan, asking the seller to include personal property, asking for closing cost assistance, or making a small earnest money deposit.  Your real estate agent can check with the seller’s agent to see what is important to the seller.  Then you can formulate a strong offer that works for both parties.