A strong seller’s market is a lot like dealing with the craziness of this pandemic. You never know what to expect day to day. Listing agents are flying high with attention on their listings. But, of course, buyer’s agents are always frustrated with the amount of work they are putting in, only to get shot down and have to repeat the process over and over again.
The first offer I lost for my client, I would have almost preferred eating liver and lima beans than having to call and tell them the dreaded words every agent hates, “Sorry, the seller took another offer.” But much like learning to play chess, those early rejected offers forced me to become more tactical in my approach.
Hating to lose more than I wanted to win, I came up with these seven creative strategies to make any offer stand out in a seller’s market.
1. CALL the Listing Agent
The motivation of this first strategy is to gain clarity on the seller’s wants and needs, and also to develop rapport with the listing agent. Sellers want to work with buyers they can trust and experience a painless closing. That means you need to open lines of communication with the listing agent to find out exactly what they need and want from the sale. To do this right, email won’t cut it. You need to call.
Determining the needs and wants of the seller on this call not only helps you write a stronger offer for your buyer, it saves you from wasted time in negotiations and just might put your offer above the others. So if you want your offer to stand out, after confirming your buyer wants the home, initiate a call to the listing agent and ask these five key questions to start developing a rapport with the listing agent:
- What is the most important thing for the sellers besides price?
- What is the ideal timing they want or need to be out of their home?
- Do they have a preferred settlement date?
- What are their biggest concerns about the sale?
- How many showings have you had and are you expecting other offers?
Remember, more than anything, sellers don’t want the anxiety of a complicated transaction. Finding out what the seller wants can help eliminate their fears and create an emotional connection to work with an offer that does not need much, if any, negotiation.
2. Make Sure You Have a Proper Approval Letter From a Reputable Lender
What is one of the seller’s biggest fears with accepting an offer? For most sellers, the fear of a buyer’s financing falling through and not getting to the closing table. (That’s why sellers love cash.) Well, let’s remove that fear and position your buyer’s offer to be good as cash. Here’s how.
At the first meeting with your buyer, help them understand the differences between a basic pre-approval and a full approval and how it strengthens their offer. Tell them in no uncertain terms the seller NEEDS the assurance of strong financing, and a proper approval letter is the best way to give it to them.
Working closely with a lender should be mandatory before showing any homes. In a seller’s market, your buyer is going to have to move fast once they find a home they love. This process can take some time, but certainly worth it to position their offer to win, making your buyer’s offer as good as cash with an expedited closing time if needed.
When writing the offer with this strong of an approval letter, it allows you to have a shorter financing contingency time and more emphasis on the appraisal contingency time frame. More on this in strategy six.
3. Include an As-is Home Inspection Contingency
Since we already talked about the seller’s biggest fear, let’s address their biggest stress point. You guessed it: the home inspection. All sellers experience anxiety wondering if the buyer is going to ask for significant repairs. This can be a huge stressor for sellers, especially sellers who have older homes.
The offer can be structured “for informational purposes only.” Basically, it is an AS-IS offer (but the buyers determine their opinion of as-is). The key is having a reasonable contingency period not expecting the sellers to invest money in repairs. The reason why is simple. Sellers want the stress of unknown repair costs eliminated more than a few extra dollars in their pocket.
You may be thinking that you are not protecting your buyer with this tactic. However, with the contingency period, if your buyers aren’t satisfied with the results of the home inspection, they are able to get out of the contract based upon their findings. It is then up to the seller to decide whether or not they choose to make any repairs. If there are any problems that would be required to disclose by law, this puts the seller at risk now that they have awareness. Congratulations. You have just empowered your buyers with a much stronger offer.
4. Nail the Offer Price & Earnest Money Deposit
After your call with the listing agent, you should have an idea of how many offers you may be competing with. So let’s talk about the offer price. Remember you have an appraisal contingency to protect your buyer, but that doesn’t mean you get all crazy escalating the price to look good. The seller and the listing agent know the value of the home and what won’t appraise. Be aggressive, but also be reasonable. This is why we are using seven different strategies. It’s not just about the sales price.
Sales price and earnest money usually go hand in hand within a contract. As a general guideline, the traditional amount offered is 1%. With an aggressive increase of your earnest money to 5% or even 10% of the sales price, this will help the seller feel the buyer is committed.
This is more of a mind play for the seller to see the increased earnest money above the other offers, giving the seller further assurance. Remember, you already removed fear of not getting financing with the strong approval letter; this is how you prove to the seller your buyers are serious, giving the seller all kinds of warm fuzzies.
5. Determine an Agreeable Closing Date
Having knowledge of the seller’s needs and desires and tailoring that into an offer—giving the seller what they want—can also go a long way.
A simple answer to this question tells you when to ask for the settlement date:
Does the seller need time to find a place to be able to move or do they need to be out ASAP?
The wrong date can make them feel stress, as it may cost them more money to move twice to get out quickly, or it may mean losing their future deal because it is not fast enough. If we don’t know the seller’s unique situation, we are just throwing a date in the contract and it has potential to work against you if it does not meet their needs and another offer does. Again, remember: Which offer gets accepted is NOT always about the sales price!
6. Strengthen the Financing Contingency
OK, now it’s time to get creative, especially with first-time homebuyers. Work with the buyer and lender on financing options if there is ANY option for conventional financing instead of FHA. The appraisal dynamics and loan conditions are very different within these loan structures, and when up against multiple offers, conventional usually wins over FHA. Unless, of course, cash is on the table, and we all know what that means.
One of the best-written lines I learned from my first managing broker was “Financing may change at no additional cost to the seller.” This is written within the other terms or financing section, depending on your contract and amount of space.
However, be sure to properly communicate to your buyers exactly what this line means to them: “The buyers have the right to change financing terms, however, it cannot cost the seller any money. As long as all parties understand, there is not much of a risk, but there’s still some risk.”
I always asked my clients how they felt about rolling the dice and what was more important to them: taking a risk writing the offer with creative wording to get accepted, or losing the house to another offer?
Here is an example scenario:
The buyer is a first-time homebuyer and has a deficit of 20% down cash in hand, but has money in an IRA or reserve from other sources. The lender can technically approve the buyer with a 20% conventional so the contract can be written that way, but all the while knowing they are going to go FHA.
7. Just Say No to a Home Sale Contingency
If your buyer has a home to sell in a seller’s market, most likely your buyer’s home will go under contract FAST. But I am not going to make a suggestion here—I am going to tell a story.
My story: Full disclosure, I am in no way saying this is right or wrong, or advocating this. It is simply a true story about one client’s desire, being creative, and having full transparency with my clients. I hope this story inspires you to understand there are many ways to be creative with your offers in a seller’s market.
My client had a home to sell. The listing agent made it clear they would not accept a home sale contingency and my clients DID NOT want to lose this home.
There was no possible way for them to make the purchase work without the sale of their home. We knew their home was in a desirable location. We immediately got their home on the market and wrote up an offer to purchase, WITHOUT a home sale contingency!
I implemented these seven strategies and my buyers moved into the home of their dreams. I was a hero. Win-win. Was it stressful? Hell, yeah! Was it worth it? 110% yes. Communication is the #1 element to the success of any negotiation.
While there are many factors that can come into play with contract writing and being creative, these were at the top of my list that made my buyer’s offers stand out above the competition in seller’s markets. Not to mention making my time writing a contract worthwhile. My clients were able to say, if their contract was not accepted, “We did everything we could,” and most importantly, they trusted me. Isn’t that the goal we are all trying to obtain in customer service—trust?
Over to You
What are some creative ways you’ve used to strengthen your offers in a seller’s market? Let us know in the comments or join our Facebook Mastermind Group here.