You’ve found your dream home and are ready to make it official. To have the best chance at getting your offer accepted, check out these 5 must-do tips.
1. Get pre-approved & provide proof with your offer.
If you’re getting a loan for the purchase of your home, talk with a lender to get pre-approved for a mortgage, then include a copy of your pre-approval with your offer. This pre-approval letter shows the seller that you’re serious and further down the home-buying process than someone who isn’t pre-approved. While it’s not a loan commitment, it shows that a bank or mortgage company has preliminarily reviewed your credit and believes you will qualify for a loan up to a certain amount (which will be stated in the letter).
All of this helps the seller feel more confident in your intent and financial ability to actually buy their home. A best practice is to start touring homes after you've got a pre-approval letter in hand. Once you're ready, shop discounted rates with top local and national lenders here, or ask your agent for a referral to a local loan officer or mortgage broker.
2. Offer more earnest money.
Offering 1%–2% in earnest money is the common practice today. However, if you want to let a seller know that you’re serious, you can provide more money to convey the strength of your offer. This money is typically held by the closing attorney or the title company and could potentially be at risk if the deal falls through, so make sure you’re confident in the home before substantially increasing the earnest money.
In general, most purchase agreements include an "inspection period" or "diligence period". If you terminate the contract prior to the end of this period, you won't lose your earnest money. You may also have the contingencies in place to cover you if in case you decide to back out later so you don’t lose your earnest money. An examples of a contingencies would be an appraisal contingency. If you have this clause in place and the home does not appraise for at least the purchase price, you would be eligible to get all of your earnest money back.
3. Discover seller’s motivation to help structure your offer.
Price is not the only factor sellers consider. Sometimes it’s important for them to close quickly (For example, they may have a new job in another city). For others, they may need more time before closing possibly to allow their kids to finish the school year or for construction of their new home to be complete.
If you can figure out the seller’s motivation, it can be a tremendous help in structuring your offer. Examples of terms that could favor you as a buyer include short or no contingencies, temporary occupancy agreement (rent back) for the seller after closing, a cash offer or the purchase of seller's furniture.
Speak with your agent to see if you can uncover these motivations, then write your offer accordingly.
4. Shorten the due diligence period.
To signify more confidence to the seller, you can shorten the due diligence period when you would do the property inspection. Especially in multiple offer situations, you may want to shorten the inspection period to make your offer stand out. Contracts often allow buyers ways to back out during the inspection period, so a longer period means the more time the seller has to wait for the buyer to commit to the purchase. An example of a short diligence period would be 3 days or less.
As a result, sellers often choose the offer with the shortest due diligence period because if the buyer does back out, the seller was “off the market” for a shorter amount of time. Completely forgoing the inspection period could be very risky. If you don’t do an inspection and find a major defect, you could be left with a hefty bill. Decide how badly you want your offer accepted before deciding to eliminate the inspection contingency.
5. Make the offer as "clean" as possible.
In short, the more simple your offer, the easier it will be to accept and close. Here “clean” usually means a short financing contingency (loan approval time), appraisal contingency, and due diligence period. Also, this means not including other contingencies like the purchase being contingent of the buyers needing to sell their house or asking for any closing costs to be paid for by the seller. The market is very competitive right now, so it may be necessary to take a few risks to get the house you want.
Now that you've covered these 5 essential tips, here are 3 bonus tips to consider.
Add an Escalation Clause
An escalation clause can be very useful in a multiple offer situation. With this clause, you state that if another person bids higher than you, then your bid will automatically go up as well. An example of this could be that you will offer $1,000 more than any other bidder up a certain capped amount. The risk of this clause is that it shows the seller the maximum amount you’re willing to offer for the house, so don’t put more than you would want to pay.
Submit a personal letter with your offer
Making an offer on a property can seem intimidating, but you should always remember that the seller is just another human like you. People are more likely to deal with someone they like or can empathize with, so including a personal letter with an offer may boost your chances of getting accepted. Your letter doesn’t have to be super formal, but it could be a short note explaining yourself and plans for the home. You can even include a photo of yourself (or your family) to help them put a face to the name. All of this will reassure them that you’re the right person with whom to make a deal. Check with your agent to make sure state and local laws allow a personal letter or email to be shared.
Once a seller decides to sell their property, they are counting down the days until it is sold and off their plate. Therefore, another tip to help you stand out would be to offer a sooner closing date. It takes 30-40 days when using a normal bank loan to buy a house, so you should factor this into your decision when considering the expected closing date and when to set it. An example of a fast closing period would be 21 days or less. If you're not using a mortgage and buying with cash, you may be able to close as fast as 2 weeks.
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