Home buyers dread the phrase ‘a seller’s market’. Writing an offer on a house or a flat is probably one of the most important negotiations you’ll have to make in life, and it can literally go both ways. If you want to get a house on today’s competitive seller’s market, you have to do it the right way.
It is nerve-racking, yes, but totally worth it if done right. When you are done reading this article, you will understand what needs to be done to get the house you really want, how to value it and negotiate on a price that fits your budget.
You will probably encounter hundreds, if not thousands of different approaches and tips for making a good offer on a property. The options are limitless, but in the end, it is you who has to select which option will work with the particular seller.
Some sellers can be approached with an offer that appeals to emotions, other to laziness. Whether you will offer to keep the property’s role of a loving home intact, or simply promise to get everything done without the extra effort of the seller, is something you need to establish along the way. Some sellers will go for cash only to close the deal rapidly, but others will be willing to wait for you to get that big loan to sell it for a higher price.
If this weren’t complicated enough, you also have other buyers to worry about.
The seller’s market is a hot market, and all prospective buyers are your competition. But, the hot market is so varied, the same creative approach does not always work. In one case, you may put a short expiration on your solid offer to rush the seller before they get more bids, but in others, you will find that the seller’s primary goal is not just to sell the home.
Take for example the letter of the woman who saved $11,000 on a house. Instead of a high bid, this woman created something we call ‘a human connection’. Her letter touched the hearts of the sellers, and this was obviously their priority when selling their beloved home.
And while these sellers wanted to sell their property to someone who will care for it and raise a family in it, other sellers would rather get the highest bid with no regard of who will live in it.
So, how do you approach the writing part of an offer for a property you are eager to own?
The Before, During and After Guide of Buying a House or Flat
To assist you in this endeavor, we created a three-step guide.
Knowing what you know now by reading the example of the woman who saved thousands because of using the right approach, you know that this is not a task to be taken lightly. Therefore, you cannot rush making an offer if you want it to stand out in the hot market.
The ‘before’ applies to the timeframe before you write your offer and give it to the estate agent. Here is what we recommend that you do:
Downplay your budget
If you have been doing this for a while or have experience with purchasing properties, you know how things are in the real estate world. Estate agents always show homes that are at least a bit more expensive than what you said your budget is, hoping that you will ‘fall in love’ with a home and spend a higher amount on fulfilling this.
Be smart with it and downplay the money you are actually willing to spend. When the time comes to negotiate, you’ll have plenty of room to get a better price. And of course, you’ll get an opportunity to see properties that fit your actual budget.
Never show your excitement
After a long search, you will find a home you really love. If you are lucky, this will happen really fast. Whenever it happens, we urge you not to prance it around. A property can ‘steal your heart’ with its appealing curb or the amazing interior, but this can also be detrimental to your negotiation success.
Just play it cool. Don’t exaggerate. Show a normal amount of interest that will keep you in good stead for when the negotiation time comes.
The search does not end until you have the keys and papers in your hand. If you fall in love with a property, but still haven’t been selected by the seller or even sent an offer, your job is not finished.
Everything can happen. Someone may put a great offer the seller won’t be able to resist accepting, or they may go for a person that found the right way to approach them. There are many things that can go wrong, even if you do everything right with the offer.
Imagine that you did everything perfectly, but the seller changed his mind in the last minute, before you could even sign a contract. Since you stopped looking because you thought your search is over, you are back to level one.
You wouldn’t want this to happen, would you? Keep looking and maintain a close search of the market. This will help you not only have a backup property but also learn details that can be very helpful in the actual offer-writing process, such as:
- How many similar properties are there in the area you have chosen?
- At what price are these sold?
- How long does it take for a property to be sold in the area?
If you learn that the properties here are hard to sell, you can make an offer below the asking price. If you find that someone bought a house at a much lower rate, you can use this in your negotiation. And finally, believe it or not, many people actually find a house they love more than the first one, only because they did not settle for the first choice.
The first question every buyer asks himself when the time to make an offer comes is the following:
How much should I offer?
Before you even make a bid for the house or flat, do your research. You already have an idea as to what properties cost in that neighborhood and how fast they are sold, so do a bit more digging to decide.
Otherwise, you may risk losing the house because you underestimated its value, or overpaying because you failed to do some digging. The second is the beginning of many troubles. If you make a very high offer, you may not get the mortgage you need from the bank, or struggle to get a close price to what you paid when you decide to sell the house later on.
Our advice here is – look at yourself as not a buyer, but a flipper. People who flip houses to earn money investigate everything and make a precise plan as to what they lose and what they gain in the process.
What are the local market factors to consider when evaluating the house or flat?
- The property’s characteristics
- Nearby schools and transport links
- New infrastructure plans that may benefit or harm you (create pollution, noise or traffic)
- The location of the property (is it highly likely to be impacted by natural disasters like floods?)
- Crime rates in the area over the years
- Price of the property throughout the year (if the property has been sold more than once)
- Previously made offers or at least an idea of high close they are to the asking price
- Results from inspections (how much needs to be invested in fixing the problems)
- More information about the people who live in the house, the reason why they want to sell, etc.
Once you have all this information at your disposal, you’ll have a much better idea of what the perfect price for both parties would be.
Tricks for Writing the Offer
The first trick we can offer you is the following – if you are bad at expressing yourself in writing, do not leave this up to chance. Consult with people who have experience in doing this, or even pay a reasonable sum to the best paper writing service you can find.
If you are ready to write your own offer, here are some very useful tricks you can use. Of course, considering you have already gone through the nine steps we mentioned above.
Don’t be afraid to go up
This is the reason why we said you should downplay your budget – to leave some room to escalate the offer.
You really want to get a property, but you are aware of the big competition you have for the house or flat? What you do in such cases is escalate the offer.
Braking the bank is never the right choice, because you may lose a lot of money on a property that isn’t worth as much. So many people rushed into this, only to find out that their competition offered much lower prices.
The escalation clause is a type of an agreement you make with the real estate agent. You are making an offer to purchase a property, but set a cap on the escalation. For example, if you evaluated that an offer of $400,000 is suitable, you add a $1,500 escalation, but with a cap on $421,500.
To avoid being scammed, request that your real estate agent shows you the offers that triggered the escalations from your original bid.
Time is money
Well, not exactly, but it is kind of the same. It would be a shame to find the best way to make an offer, to only learn you were too late to submit it.
Many things can come in the way. In a buyer’s and seller’s market, you must be fully prepared when the time comes to make an offer. Did you sell the house you are living in before buying a new one? Is the offer contingent with the ones you have on your current home?
You probably have buyers lined up to buy your house, and wait to be safe to purchase the new one. However, in many cases, a ‘contingent offer’ is a deal-killer. Not everyone will wait for you to find the right bidder for your current home. So, even if you haven’t sold it just yet, always be prepared to do so in a timely manner.
Don’t waive – rush contingencies
Be prepared to waive some of the contingencies, but not all of them. If you waive inspection, this can bring on many troubles afterwards. Whether it is an appraisal, finances, or inspection, any real estate professional will advise you not to waive it.
Instead, try to shorten the timeframe. For example, if the seller gives 15 days for you to respond to their disclosure form, do it in half that time. If they give you a timeframe of two weeks to have the inspection, do it within the week. This will bring the end of the negotiation closer, and sometimes time can be the key to getting the house you want.
As we said, sometimes you will have to set an expiring offer to rush the seller before they find new buyers. If the offer is appealing and you manage to shorten all timeframes, the house is yours.
Remember that cash is a powerful thing
One of the troubles you may encounter along the way is financing the contingencies. You will undoubtedly want to include some contingencies in case something goes wrong, and this a reason why cash is a powerful tool.
Imagine that your spouse or you unexpectedly lose a job, or there is an issue with your bank accounts. So, even if you are prepared to get a loan to buy a house, the person who has the cash is much more likely to be chosen instead.
Of course, not all of us have few hundred thousand just lying around. What can you do? A pre-approval letter is a must if you want to secure a loan that will get you the house. Help your case by putting a big down payment that will show you are in a strong financial position. This should convince the seller that you are less likely to back down, and financing issues will hardly come up.
Try out the halo effect
You really liked a house, but the neighborhood is so hot, it is much more expensive than you planned to spend? Try out the halo effect!
What does this mean?
It means that you don’t have to live in the center of the hot neighborhood to enjoy its benefits. Be patient and consider one of the neighborhoods right around that corner. They will be equally beneficial, have less competition you need to beat, and most importantly, be more affordable.
And you can still enjoy all those restaurants, parks, shops and stores, and good schools.
Bidding Tactics for Different Bidding Processes
Before you enter the negotiation or bidding process, check which system the seller uses. Your tactic will depend on the type of bidding – an open negotiation or sealed bid.
An open negotiation is a sure place to start low. In addition to giving a lower price range to the real estate agent, offer 10% less to the seller whose house or flat you like. Take into account that the seller may have anticipated such actions and put the property for more than the reasonable price.
This is where your intel and research comes in handy. Speak to your real estate agent and do your research to see what the actual value is. An agent is not allowed to tell you the exact bids of others, but they can tell you if some bids trump yours. This is a shot to offer a higher bid afterwards.
And finally, stay realistic and within your price range. If people keep using the escalator technique and you cannot keep up, back off and continue your search for a property.
Sealed bidding is a bit trickier, but are much easier and less time-consuming for the seller. Sealed bids are often preferred by the sellers because they can get much more than they asked if the property is located in a hot neighborhood.
In most cases, this approach even suggests that the seller is in a rush, so you may use this to your benefit. Still, you wouldn’t want to risk losing the property because you underestimated its value, you consider all factors carefully.
Try to overcome the temptation to offer money that are above your budget. Pay only what you believe the property is worth.
A good way to determine this is by looking at this as an open negotiation. What would be the highest price you’d be willing to pay in such case? Sealed bidding is the same, only without all that competing.
When the seller has accepted the offer you made, you have an open path to purchasing your property. However, remember that this is not legally binding for you or the seller until the exchange of contracts.
If you signed a deposit contract, you probably won’t get it back if you pull out of the deal. Some people make offers on several properties and often pull out after the seller accepted their offer, because they got a better deal for another property.
Beware, this also happens with the seller. Some sellers decide to pull out of a deal if they accept a better offer (this is what we call gazumping). You are a potential victim to this if you have a low offer and tried to rush the process, but did not succeed.
In such case, there isn’t much you can do. All you can do is counter-gazump the gazumper by elevating your original bid.
So, if a seller has accepted an offer you made, try to seal the deal as soon as possible. Demand that they take the house or flat off the market and rush the inspection, mortgages arrangement and solicitors process.
Are you ready to get the house or flat of your dreams? Follow our advice and get right on it. Good luck!