How to Make a Winning Offer
The key to a good offer is understanding the market value of the property, which may have little to do with the asking price, and putting together a compelling offer that goes beyond just price and that makes your offer stand out from the rest.
Making a winning offer is more than just price. It's not uncommon that in a multiple offer situation the seller accepts a bid that wasn't the highest for any of a number of reasons. Here are a few tips to help you be the one who gets the keys.
Tip 1 - Know what you're trying to accomplish
It sounds obvious but if you aren't clear on what you're looking for it's impossible to know when you've found it. You need to consider every aspect of the move from the price, moving costs, timing, the neighborhood, the schools, the home and it's features, it's age, style, and condition, yard, storage, living space, office space, play space, and what every aspect of your day to day life now and into the future will be like in your new home. You should also have a clear mental model of how the transaction is going to work financially, where the money will come from, when it will be available, and how you will convince lenders that you are credit worthy.
Tip 2 - Forget about the prices you see on online realty sites.
Everyone, and I mean everyone, who starts to think about buying a home is going to become a Zillow, Trulia, Redfin, etc expert on valuations in the neighborhood. There's really nothing wrong with this at all, it helps people understand the relative values of homes on a streeet or in a community, or compare one neighborhood to another, but when it comes time to buy if you rely solely on the online algorithms you're going to become frustrated very quickly. For example, a home sold at a significant discount to other homes on the street in our old neighborhood and made it look like the buyer got a terrific deal. After speaking with local realtors familiar with the transaction it turned out that the foundation had failed, the home had significant dry rot repairs and the cost to fix everything was over $80,000. There was nothing on any of the online sites that even hinted about this so if you were to use this home as a comp for making an offer on another home in the same neighborhood you would lose to better informed buyers every time. When it comes time to get serious about buying a home find a realtor you can work with and have them help you pull valid comparisons for any home you are bidding on. They have a vast array of resources available to them and they know how to use them, one of the most important benefits you should expect of a good realtor is the ability to help you come up with a reasonably narrow target price. Once you have established a target price the job still isn't done, there's much more you need to do before you are prepared to make an offer. Even with an offer based on a good target price a better informed buyer could come in at a lower price and still beat you out with a stronger overall offer or a more motivated buyer could outbid you because they were willing to bid more agressively within the exact same target range that you had established.
Tip 3 - Know the market drivers
Market drivers are things that influence the price of the home that have nothing to do with the home itself but have direct or indirect influences on the price of the home. One example would be a new highway that is planned that improves access from a community to employers, shopping, and services. With covid-19 high cost markets like San Francisco are seeing an increase in sellers as knowledge workers take advantage of employers' allowing employees to work remotely on a permanent basis. On the other hand, suburbs outside the bay area are seeing demand increase as those who flee their cramped, expensive quarters in the city are seeking homes with extra room for home offices, workout rooms, bonus rooms and other amenities both inside and out as people realize they're going to be spending far more time at home for the foreseeable future. Many of these knowledge professionals are fleeing the high cost regions entirely and heading for states like Arizona, Texas, Utah, Idaho, and, of course, Oregon. At Keller Williams Professionals we have a number of resources available to us that help evaluate market drivers like these so we can help you make the most informed offer possible.
Tip 4 - Know the market trends
The market trends are tied to the market drivers but are vectors with magnitude that are moving up, down, or sideways. Also, the market drivers can work against each other or interact with each other in complex ways. For example, on the one hand covid-19 is causing potential sellers to hold back from listing their properties because of the uncertainties related to the pandemic, causing a shortage of supply. Meanwhile, some high cost areas are seeing an increase in listings because people are moving out for the reasons described above, yet prices remain high because of pent up demand from people that want to stay in the area and couldn't afford to buy before are now willing to jump in and sustain demand. There is always something going on, far more than I can list here, and the only thing that matters is that you untangle this enough at the time you are house hunting in the market where you are buying so that you can make an informed offer. A good broker is aware of these trends and how they influence the local market and can help provide guidance on the best way to bake these considerations into your offer.
Tip 5 - Know the distribution of sales transactions
Recently I was working with a buyer who was searching in a particular price range that was right in the middle of the highest sales transaction volume in their target neighborhood. Imagine a bell curve where the horizontal axis is the price and the vertical axis is the number of sales. If you are making an offer for a home in the middle of that bell curve you need to expect you are one of maybe 5 to 10 offers that will be made for a highly desirable home. If you really want that home you're going to have to bid aggressively. That said, if you have the flexibility or the means to your budget you may find less competition if you can search for homes at a slightly higher price range. This isn't always the case, but it is something you should consider. The value you get for the money at the higher price point may be much better than they value you get in a multiple offer bidding war at a lower price point.
Tip 6 - Know the seasonal patterns
One familiar seasonal pattern is the trend where home sales pick up as the school year winds down, peaks in early summer, and then tapers off as buyers seek to complete their move before kids have to go back to school. Even if you don't have kids you probably will still have to deal with this. If you're a seller you want to be very conscious of making the best marketing presentation possible at the peak and getting in contract before sales transactions taper off. If you're a buyer you have to deal with the competition but may find better deals either early in the cycle or later in the cycle. You don't always get to pick when you begin your house hunting but knowing where you are in the cycle will help you plot your strategy.
Tip 7 - Know the quirks of the neighborhood
The town I live in, Lake Oswego, is the poster child for wild variations in home value on a single street. There are a number of good reasons for this, one is that there aren't any tracts of land left to develop so there is a lot of infill taking place as well as redevelopment where older neighborhoods built in the 50's and 60's are seeing homes bought, torn down, and replaced with new construction. The result is you have a 1,700 square foot home built in the early 60's that was last updated 40 years ago and needs a new roof, new kitchen and bathrooms, substantial dry rot repairs and a new driveway sitting next door to a 5,200 square foot new construction home with a 3 car garage and all the upgrades. There's also wild variability with an abundance of flag lots, slopes, lot size, lot quality, age, lake easements, quality of construction, design, etc. This makes it both art and science for a good broker to assemble a meaningful collection of comps that will help establish the market value of a home you fell in love with and hope to buy.
Tip 8 - Empathise with the seller
Some people focus on how much the seller owes on the home, I think this is a mistake because these are details that are irrelevant to the market value and will just distract you from more important matters. You're offer must always be driven by the market value of the home, adjusted by how badly you want to live in it. However, it is still important to empathise with the seller. Empathy comes into play in a couple of ways, first is to put the timing of the sale in the context of everything else we've discussed, especially seasonal patterns. For example, if the seller is motivated to sell but the market window is narrowing that may make them more amenable to certain concessions if they get into contract with an overall strong offer. They may show flexibility on price, timing, or more easily agree to make some repairs discovered in the inspections. A seller may be selling to complete a purchase of a new home that is contingent upon the successful close of the property you want to buy, or perhaps they have some other pressing financial need contingent on accessing the equity in the home by selling it by a specific date. You will have an advantage if your offer allows for high confidence of successful, timely closing. A great example of this is if you make a good offer but one that might not win in a competitive bidding situation. Your strategy here is to come in with a good offer that the seller and their agent perceive as being high confidence for a successful completion on the committed schedule when they are uncertain if they will receive any other offers any time soon. This is your opportunity to get this home locked into contract before other buyers have a chance to jump in and drive up the price in a bidding war, pricing you out of contention. The buyer benefits by getting a good price for the home with a highly qualified buyer with a strong offer and gaining the assurance they can move on to the next stage of their life journey. This is the classic bird in hand scenario. If you make a weak or low ball offer they'll likely counter you, resulting in delays that allow other bidders time to discover the property and jump in with a better, stronger offer, or the seller may make the price pumpable for a period of time. All of these potential outcomes from a low-ball offer not aligned with market value just leave the door wide open for another buyer with a stronger offer to come in and take your dream home right out from under you.
Tip 9 - Make a personal connection
This of course refers to "The Letter". In a situation where there are two otherwise comparable bids the one with a heartfelt letter can and probably will win the home. A good letter should respect the sellers time by being short, something that fits on one page including a family photo with the pets. You can't fake this, that could be worse than no letter at all. Every letter should be different and should zero in on exactly why buying this home is so important to you, you can mention things like how there is room for a play set the kids always wished for, or the garden you always wanted, how it's walking distance to the schools your kids will attend, or how family is nearby, or there's room for them to visit, or how important it is that everyone has their space to work, study, and play. Mention how great the holiday and family milestone photos will look in front of the gorgeous fire place. Make it personal, make it you, make it real. Reveal a little bit about this important part of your life story. Don't be pushy, thank them for their time and be genuine. Have someone proof read it for you, and get your realtor's input before you submit it with your offer.
Tip 10 - Make a strong offer
A strong offer is much more than price. A strong offer is a combination of price, proof of financial means, smart contingencies, empathy for the seller, and one that gives confidence with everyone involved that if your offer is accepted you can complete the transaction on the expected timline. Your offer price has to reflect market value, if it doesn't then you're wasting everyone's time. Market value is determined based on the market conditions on the day offer is made, this means that if you found a comp from 3 months earlier that makes you want to bid low and the market has shifted you're not making a strong, informed, or competitive offer, a more informed buyer will scoop the property and leave you empty handed and everyone's time will have been wasted. Your realtor is there to help you understand the current market conditions and help make sure you've got expert advice for every aspect of the transaction to make sure you are making a strong, competitive offer that can get you in contract.
If your sale is contingent on selling your current home the same rules apply, you have to sell based on market price. You may have a "must have" price in mind but that's not going to help you and may torpedo the whole deal leaving you right back where you started and possibly missing a key market cycle. The deal has to work based on a conservative estimate of the market value of your home, anything you get above that is a bonus that is not a dependency for the successful completion of the transaction, think of it as a windfall you can use for some furniture for the new home so you can leave the old stuff behind. You need to find a good broker to represent the sale of your existing home, an expert who knows how to best market your home, what investments you can make to get the biggest return for clicks, eyeballs and sales price for the timeline available. A good seller's agent will also have a list of reliable high quality contractors with a track record of supporting these kinds of projects at a very fair and reasonable price even on extremely tight timelines. A strong offer is one where you have an informed, achievable plan that is going to result in a timely close that makes all the banks happy and that all of the stakeholders in your purchase transaction can be confident that you can pull off as planned. When an offer is in play brokers discuss these issues as they make the pitch for their clients. The way you approach these kinds of details will impact how successful your broker is in convincing everyone that yours is the best, strongest offer and the one the seller should accept.
Proof of financial means starts with the pre-approval letter, but be forewarned that you can't count on a pre-approval letter as a guarantee that the loan will go through. But at this point we're just trying to get the offer accepted. A strong offer would have 20% down, a stronger offer would be more than that, the more the better. The strongest offer would be all cash from a financing perspective but don't think for an instant that a low-ball all cash offer will mean anything to the seller when they have a dozen higher offers from buyers that are perfectly capable of securing a loan. Also remember the assets you intend to use must be highly liquid and ready to transfer into escrow at closing time and that the bank is going to be suspicious of any large sums of money that is deposited in your accounts shortly before the offer. They are looking for signs of any personal loans that you are obliged to pay back, which changes your credit ratios. Be prepared to document everything.
Contingencies are an important part of the offer that protect your interests. If there is an HOA or any type of easement associated with the property you may want to make the sale contingent on having your attorney review these agreements. If there are any disagreements, confusion, or ambiguity about property lines, easements, setbacks, structure or fences you can make the deal contingent upon having a surveyor come out and mark the boundaries. If there are legitimate issues a reasonable seller should look at a contingencies as logical, fair, and necessary steps requiring resolution to move the deal forward and a sign of a sophisticated, informed buyer. If they push back then this should be cause for concern and you should carefully assess the risk, what your next step should be and reassess whether this is the right property for you. Your realtor is a good sounding board for developing a strategy for your offer, but ultimately the decision is up to you.
A real estate transaction, particularly one that involves the sale of more than one property, can be a complex series of events that involves large sums of money and changes that impact people's lives. Every aspect of your offer and how you deliver it needs to build confidence with all of the key stakeholders in the transaction so that they trust that you know what you are doing and that you are capable and willing to follow through with the successful purchase of the home. This also becomes important if some unforseeable obstacle arises that threatens the deal. If the stakeholders are confident that you can work things out they're more likely to agree to work with you as you resolve the issue.
Tie up the Property
You're not going to get all the answers you want before you make an offer, that's what inspections are for. If you delay as you're trying to get the date the last time the water heater was serviced then you're leaving the door open for someone else to make an offer and get in contract, boxing you out and leaving you to start over again. If you are serious about a property you need to get in contract and tie it up so no one else can take it from you. Once your offer is accpeted you need to get right on any open questions and have them resolved within the time period between when your offer is accepted and when the Purchase Agreement is finalized, generally about a 2 week period. If you want the house you need to be decisive.
Tip 12 - Keep your cool
Buying a home is a big deal financially and emotionally. The best way to deal with this is to consult with experts, have a clear picture of what you're trying to accomplish with a clear timeline, and work with a real estate professional who can help you put together a coherent plan that will give you the best advantage when it comes to finding the right home and making a winning offer that gets you and your family in a home you will love.