Learn 10 tips to get offers accepted in hot markets in this new class recording from James Orr.
The 10 tips covered in this class include:
- Appraisal Gap/Waiver
- Escalation Clauses
- Call Seller’s Broker
- Lender and Loan
- Hot Sheets
- Earnest Money
- No Conditional Sales
- Accept Backup Position
- Supply is low
- Demand is high
- Interest rates are low
- The “real estate market”… as a whole… is hot
- Multiple offers on many properties
- Above asking price offers
- Reduced or waived inspections
- Appraisal waivers or making up gaps if properties don’t appraise
- How do you get offers accepted in a hot market like this?
Actively For Sale and Sold Properties in Northern Colorado
Months of Inventory in Northern Colorado
An Example From Earlier 2021
Feedback from the showings:
23 offers received and summarized in a multiple offers spreadsheet like this one:
The following is a graphical summary of the max offer and the appraisal gap summary for the 23 offers:
22 Buyers Move To Next Property
- 23 Offers
- 1 Offer Accepted
- 22 Not Accepted
- These Buyers are all moving on to the next property
- Minus any Buyers that get frustrated and walk off in a huff
- Plus any new Buyers that enter the market
- Listed for $365K
- 128 showings
- 38 offers
- 10 for cash
- Winning offer: cash at $82K above asking price
- Sold for $447K
- Not all are like this, but some are
- Client shopping in Wellington most were seeing 6-10 offers
- Sometimes client would opt to not even go see it if it already had a bunch of offers
- 20+ offers was not uncommon
Listing in the MLS
Here's an example of what another agent wrote that is similar to what we're hearing on other listings as well:
Why Don’t Sellers/Brokers Set Prices Higher
Why don’t Sellers/Sellers’ Brokers just list properties for higher?
In a word: appraisals.
In another “word”: better terms for the Seller.
Fort Collins – Sold Data Q1, 2021
Be prepared to make a significantly above asking price offer.
Not all properties are selling above asking price. About 1/3 in Fort Collins CLOSE for less than asking price.
- Realize… Sold Price is NOT the same as Offer Price.
- Prices may change while under contract
- Although not as much in our current market
- Negotiate inspection, appraisal, something else
- Agent may change list price after an offer is accepted
How high to go?
- Personal preference (you’re living there) and
- Return on Investment calculations and
- Comparable sales
- What it might take to get your offer accepted if you want that property
- List price is NOT appraised value
- Contract price is NOT appraised value
- Fair Market Value is what a buyer and seller agree to sell the property for in an arm’s length transaction
- Appraised value is what an appraiser’s opinion of value that they can justify with data from recent sales of similar properties…
- In a fast-moving market, appraisals lag fair market value
- Especially in a multiple offer situation, you might need to make an above asking price, above appraised opinion of value offer on a property to have a seller accept your offer
- By definition: if you, as a buyer, agree that’s a price you’re willing to pay for the property and a seller agrees that a price they’re willing to sell for… that is the fair market value of the property
- Even if the property does not appraise for that
What will lenders loan? Typically, X% of the lower of purchase price or appraised value.
Appraisal Waiver = regardless of what it appraises for you’re buying it.
Appraisal Gap = you’ll make a defined difference if the property does not appraise for offer price.
Lots of variation on how to write these and they mean (slightly) different things.
Can reduce loan down payment amount so you have extra money for appraisal gap/waiver deficiencies:
- So, if you originally planned to put 20% down… maybe you’re using part of that to make up an appraisal difference and putting less than 20% down
- Might introduce Private Mortgage Insurance into your purchase (if you drop below 20%)
Call Seller’s Broker
- Find out what the Seller wants
- Some Seller’s Brokers are overwhelmed and you won’t get through
- Some are putting out Offer Writing Instructions – almost universally “highest and best and make up appraisal gap”
- Be flexible and easy to work with
- This could be its own tip by itself
- Write a clean offer
- Making a Seller/Seller’s Broker counter to fix something in your offer is making it harder to work with you… not easier
- Minimize contingencies and nuisance language (asking for appliance manuals, etc)
- Aggressive acceptance deadlines
- Buyer Name and Offer Assignability
- What can you provide that the Seller wants?
- “What would be your Seller’s perfect offer?”
- Try to meet as many of these as possible
- Post-Closing Occupancy Agreement
- Might be REQUIRED to get offer accepted if others are offering it
- How do they feel about escalation clauses?
- Call back when submitting offer and bullet point the highlights and strengths of the offer
Closing Date and Possession
- Many Sellers want/need flexibility
- Consider adding flexible Closing Date clauses and/or Post Closing Occupancy Agreements
- Nomads™ be especially aware of owner occupant financing rules – you usually must occupy within 60 days
- Post-Closing Occupancy – the amount you charge has an impact
- Consider including it as part of your Purchase Price
- Have amount if they go over initial agreement be customary
Lender and Loan
- Include Proof of Funds and/or Lender Letter with offer
- Have funds required to close and mark that off on contract
- Fully Pre-Approved, Not Just Pre-Qualified
- Lender who will call Seller’s Broker and advocate for Buyer
Best Loan Type
- Can be some prejudice toward VA and FHA loans
- Preference toward cash then conventional financing
- In general, Sellers/Sellers’ Agents tend to feel someone putting more down is a stronger offer
- Adjust down payment down to have more money for appraisal waiver/gap
- In theory can be used to raise price to exceed the price of another offer
- Without an appraisal waiver/gap these can be worthless
- What happens if you have two (or more) offers with escalation clauses?
- Do they account for all the other negotiations in the contract?
- Can be extremely risky if you don’t set an upper limit
- Can be used to leverage others to strengthen their offer
- An escalation offer without an appraisal waiver/gap versus one that does to max out the escalation offer with the waiver/gap
- Many Seller’s Brokers are advising their Sellers to negotiate out the escalation clause and just raise the price.
Waive inspection – increases risk to Buyer.
Lite inspection – still increases some risk to Buyer.
- Have it done before you make an offer
- Don’t have it done at all
- Have it done after offer is accepted, but can’t terminate based on inspection
- Have one that you can terminate, but you’re not asking for repairs or price reductions
- Have one that you’re only looking at non-cosmetic issues
Use them to see how much properties in that city in the last X days were selling for compared to list price and how quickly.
Use this to get a feel for how competitive the market is when you’re about to make an offer.
See our The Ultimate Guide to Earnest Money for a 2-hour deep dive into all things Earnest Money.
What happens if you don’t perform?
- Depends on what contract says, but in most cases your Earnest Money is at risk
- In some rare cases, you might have “specific performance”
See Earnest Money class for details.
- You may be able to convey more seriousness to close by increasing earnest money
- Good Seller’s Agents realize that with a bunch of outs in the offer though that the chance of the Seller keeping this Earnest Money is low
- Might be a good tie-breaker for similar/identical offers
No Conditional Sales
- If your offer is contingent on your property selling/closing that’s going to significantly weaken your offer to buy
- There are a lot more chances that your offer will not go through with a home sale contingency offer
- It may be near impossible to make an offer strong enough to overcome a home sale contingency
- Typically Nomads™ won’t have this issue
- Can you qualify for a new loan without selling this one?
- Might be better to negotiate a post-closing occupancy agreement on the property you’re selling
Accept Backup Position
About 20-25% of contracts do not make it to closing.
Being in backup position might give you a chance to get an offer where the first Buyer fails to perform.
Assume You’re Doing Customary Stuff
- Buyer typically pays for appraisal
- Some lenders may pay for appraisal
- Title insurance who selects and pays
- Closing Services Fee – who pays and how much is it
- Status Letter and Record Change Fees (for HOAs) – who pays and how much is it
- Don’t just wait for the weekend or evenings to see properties… make time
- Consider listings that have come back on the market or have had price reductions.
Instead of competing for resale properties, consider buying new construction instead.
Often no bidding wars.
See entire class Buying New Houses as Investments and Nomads™.
- Specific Performance
- If you can pay cash: Making an offer waiving all loan conditions, but disclosing you intend to get a loan (but can/will pay cash if needed)
- Personal letters and broker letters
- For some investors, a letter from your Real Estate Agent
- Nomads™ buying multiple properties can have their agent write a letter as they make more purchases and the agent can say stuff like
- “I’ve closed 4 purchases with this Buyer in the last 4 years and they’re super easy to work with. You won’t have any problems with this Buyer.”
- I personally do NOT recommend you send personal letters talking about you, your family, your situation
- Many Sellers are directing their brokers to not even show them letters to avoid Fair Housing Violations
- If you’re going to do a letter it should only be about the house (and ability to perform… although this too could be dangerous)
- Don’t assume there will be a negotiation. Sellers don’t have to negotiate offers or treat buyers fairly… Sellers can accept any offer they choose.