You find the perfect house, make what you believe is a fair offer, wait on pins and needles to see if it is accepted, only to find out that someone outbid you. It begs the question: what is a strong offer on a home?
What to Do When There Are Multiple Offers on a House
When there are multiple offers on a house, buyers might have to bring more to the table, employ strategic tactics, and work with an experienced, full-time real estate agent. But one of the biggest questions buyers have isn’t just how much they’re willing to offer. They may have to decide how much they’re willing to offer over list price. And while there isn’t a perfect formula to help a buyer decide, there are several things to consider when creating a purchase offer that could help it stand a chance of winning a bidding war.
How Much to Offer on a Home
In some markets, offering a few thousand dollars over list price might be all it takes to win a bidding war. But in other markets, offering $50,000 over still won’t get the job done. Since real estate is a local endeavor, it’s critical to work with an experienced buyer’s agent that has a pulse on the current trends of your market.
When deciding on the offer price:
- Have your buyer’s agent pull the localized data on recent home sales to determine what percentage of the list price the previous sales received.
- Determine if the local comps support a higher purchase price than the current list price.
- Evaluate how much liquid cash you have to pay over appraisal value if need be.
- Before you agree to an escalation clause, make sure your agent fully explains how they work.
- In most cases, you don’t get to know what others are bidding on the home. You are blindly bidding against someone else, so in this market, offer your best right out of the gate, keeping in mind that the highest isn’t always the best if it means you’ll wind up “house poor.”
Other Ways to Strengthen Your Offer
There’s a reason real estate contracts are several pages long, and price is only one small section in the offer. While presenting a strong purchase price is critical, there are other factors that make up a home purchase contract — which means there are other ways to strengthen an offer, even in a seller’s market.
One of the biggest ways buyers weaken their offer is by including contingencies. The most common contingency is the home sale contingency—the purchase is contingent upon the sale of their home. While needing to sell in order to buy is common and reasonable, sellers may not want to entertain these offers if they can avoid it.
Buyers should consult their lender to see if they can safely purchase without having to sell. In addition, work with your real estate agent to determine a reasonable list price and sale price to get your home sold quickly. And while it’s not ideal, buyers should consider selling first and living in temporary or month-to-month housing while they search for a home to avoid having a contingency offer. If a home sale contingency is necessary, buyers can strengthen their offer by adding a kick-out clause.
If you’re considering asking the seller to pay for your closing costs, you should rethink it depending on your local market. In a hot market, sellers may not be willing to consider requests for concessions. Before buyers begin their home search, they should educate themselves on the upfront costs of purchasing a home, and become familiar with loan programs available to buyers that assist with some of those upfront costs.
Forego Repairs or Offer a Repair Threshold
In a seller’s market, sellers are doing less and getting more. They’re not wanting to spend thousands on repairs, especially when there are plenty of buyers who would purchase their home “as is.” That said, offers that forego inspection and repairs or offer a repair threshold stand out among the crowd.
While waiving an inspection altogether can be highly risky (and is often not recommended), it does happen in some markets. But, if you still wish to have the comfort and protection of a professional home inspection without sabotaging your offer, consider an offer that specifies there will be no requests for repairs, or that you will request repairs only if they meet a certain financial threshold. This tactic gives buyers the protection of an inspection discovery while also reassuring the seller that they won’t be nickel-and-dimed on repairs.
Include an Appraisal Gap
In years past, the appraisal price was the dominant factor in the transaction and one of the biggest protections for buyers. In some markets, however, buyers may offer more than the home’s current value. By including an appraisal gap in a purchase offer, buyers can substantially strengthen their offer. An appraisal gap is when a buyer agrees to pay all or some of the shortage between the offer price and the appraisal value. It’s important to remember that banks will only lend on the appraised value, so any appraisal gap is the out-of-pocket responsibility of the buyer. We buy houses in Orland Park
What Not to Do in a Seller’s Market
The best way to get your offer accepted? Submit an excellent offer and keep it ethical. Submitting a subpar offer but including a buyer love letter is no longer the way to win a bidding war. Not only is it risky, but it can also potentially violate federal law. So forego the love letter and instead submit your strongest, cleanest offer for the best chance to stand out from the crowd. It might not be the most convenient scenario, but if you’re really wanting to buy, it could mean all the difference between getting that coveted house or staying in the search pool.