How to Make your Offer Successful in a Competitive Situation

The highly competitive 'sellers market' we saw in the popular towns has continued into 2018, and has expanded to those towns where the commute is longer or the school district not as good. So, what does it take to be a successful buyer in today's highly competitive housing market?

The Offer Price is clearly important but it's just one factor that, when combined with inspection, appraisal and mortgage conditions, convinces the seller that they a getting a good price and that the transaction will move to closing quickly and smoothly - what economists might describe as minimizing transaction costs.

Let's look at the various factors:

Offer Price - a strong offer price 'gets you in the game'. A home is the single largest asset of most sellers. Move-up sellers need the money to buy their next home; move-down seller's will use the appreciation to sustain their lifestyle, perhaps in retirement. So, buyers should look closely at what relevant properties are selling for and for those recently sold how long they stayed on the market (if they sold in the first weekend it's probable that they sold for over asking). We track this sales/list price ratio on our website www.MAPropertiesOnline.com for over 40 towns - contact us if you would like more information on this and other real estate statistics. As an example this is the sales/list price ratio for Arlington - one of the most popular towns with first-time and move-up buyers.

Escalation Clause - an escalation clause is where buyers state they will increase their offer price should other offers exceed theirs. The clause states the price increment and the maximum offer price. Two things are important - escalate from a 'strong' offer price, and make the offer increment large enough to make the sellers see the value in accepting your offer over the next highest.

Offer Deposit - $1,000 is the traditional amount put down at offer time. From the sellers perspective, a buyer can 'walk away' at any time prior to Purchase and Sale and only forfeit $1,000. Buyers should consider increasing their offer deposit to make the offer more competitive.

Appraisal Value - before a bank will lend against a property it requires a property appraisal to determine how much it will lend on the property. The mortgage appraisal process involves comparing the property against comparable properties in the same area to determine the appraised value of the home. In today's market this can be a concern for sellers when the offer price is higher than the listing price, and there are fewer comparable homes and prices are rising. If the appraiser appraises the home for less than the offer price then the bank will lend on the appraised value, not the offer price. When this occurs the buyer will have to find the additional funds or exit the contract (at the mortgage contingency). If finances allow, buyers should consider adding a clause to the offer stating that they will fund any shortfall should the property not appraise for the offer price. 

Inspection Contingency - the inspection contingency allows a buyer to exit the contract if issues are found during the house inspection. This is a major worry for sellers because buyers agents and buyers know that should a house come back on the market after just a few days, issues were identified at the inspection and they are often reluctant to look at the house again. There are a number of strategies buyers can take to mitigate this issue - they often involve accepting additional risk and so they should be carefully considered, and will differ based on the property condition. It's therefore important to discuss the various options with your buyers agent or contact the MA Properties Online Team for further clarification.

Mortgage Contingency - the mortgage contingency allows a buyer to exit the contract if they are unable to secure financing for the property purchase. It is possible to waive this contingency - but care is required here. At this point in the process (after Purchase and Sale) the buyer has 5% of the offer price in escrow as a deposit. If, having waived the contingency, a buyer applies but fails to get a mortgage they may lose their deposit. Also, if the house fails to appraise for the offer price and the buyer does not have sufficient funds to makeup any shortfall they may also lose their deposit. It's therefore important to discuss waiving the mortgage contingency with your buyers agent or contact the MA Properties Online Team.

Home Sale Contingency - if a buyer has to sell their existing home to buy the new home this will be noted in the mortgage pre-approval. Even in this 'sellers market' where homes that are priced and marketed well often sell in the first weekend; seller's are very nervous about accepting offers from buyers who need to sell in order to buy their home. Read the newsletter 'Timing a Buy and a Sell' for details on strategies that can minimize this factor and guide you when to sell your existing home.

Letter to the Sellers - often dismissed by buyers as having little effect, they play an important part when price and other terms are equal. Selling a home is not simply an asset transfer, the asset is where major life events took place - children were born and grew up, holidays when families came to visit, and summer parties with friends in the back yard. We all have an attachment to the house we live in and would like others to have the same experiences. This is where the letter to the seller plays a part. Provide information on what you love about the house, your family situation and any other details you think the seller should know. It won't make the difference if you are thousands off the highest offer, but if you two offers are close then it may make the difference.

Successful offers will have some combination of these different factors based on the buyers specific circumstances, risk acceptance and financial security. The seller's situation also determines which offer they will accept. For example, a seller who already has an accepted offer on their new home will probably weigh the factors that govern the successful completion of the transaction (the various contingencies) higher than the offer price.

As this blog outlines, finding the right mix of factors is complex. The MA Properties Online team are writing successful offers in this market. We can help you tailor your next offer to be a successful offer.

If you would like an estimate of what your home would sell for in today's market I would be more than happy to come by, have a look at your home, and then provide a market analysis which will provide you with an estimate of what your home should sell for, along with a marketing plan to get maximum exposure for your home.

If you have any questions about any of this then please don't hesitate to reach out to one of us. We would be more than happy to help.