Which offer will my client pick??

With inventory continuing to remain low home buyers are desperately trying to maneuver the crazy multiple offer market. How do you make your offer stand out above others to secure the home of your dreams? How do you set realistic expectations? I have been a REALTOR® for 20 years and this market can even exhaust the most seasoned professionals.

“Luck Is What Happens When Preparation Meets Opportunity”. This quote, attributed to Roman philosopher Seneca, (while many others have claimed it) It is a wonderful reminder that WE make our own luck by being well prepared. This is how you become the winning offer in a multiple offer scenario.

Let’s start by talking about your offer through the seller and listing agents eyes. When presenting multiple offers to my sellers I find I need to make it as easy as possible for them to comprehend. So I start with a summary spread sheet that looks a little like this.

On this sheet I highlight the most impactful terms; Price, cap price if there is an escalation clause, pre-paids requested, misc items requested, loan type & rate, percentage down, pre-qualification amount, who the lender is, how much earnest money they are putting down & closing date. I highlight in green the items that are better than other offers and in red the least desirable items compared to the other offers.(You need to be prepared to be as strong as you possibly can in each category to position yourself in the best light. I am going to go through each of these and explain a little later in this article.)

Why am I telling you all this? Because you need to make SURE you have a buyers agent representing you to coach & prepare you for success. Otherwise you are in for a long journey of discouragement and tears. A representative who understands all these nuances can make or break your offer. More than ever the agent you select to represent you can be a key factor in succeeding in this VERY competitive market. If you do not have a buyers agreement in place yet with an agent I strongly recommend you interview a few agents and select the one who can best serve you. (If you need some names reach out to me I have a referral list of incredible agents all over the country who know how to manage this market) This is not about liking my friend, family member of the person I met at the open house, and letting them help me buy, this is about having a savvy professional who knows how to get you what you want.

#1 STEP ONE -So first step is to get the RIGHT agent.

Here are a few questions you might ask them a few things you will want to know about the person helping you make the BIGGEST purchase you have ever made or ever will make in at least the next few years. You need to know your representative knows their …stuff!

#1 A professional buyers agent will want to do some sort of a consultation before they start showing you homes which will include making sure you are qualified at this time and not working with another agent. An agent who answers the phone and shows up at the door to show you a home without that, isn’t a pro, doesn’t have many clients and is not a good manager of their time, which will be an important part of your success moving forward. Professionals at the top of their game and skillset are in high demand so it might take a minute to get them to represent you. Another thing to consider if buyers agents are usually paid the lions share of their fees from the seller, so there isn’t much of an investment on your part to wait for the right one.

#2 Are they part of a team? Honestly there are excellent agents who work in teams and outside of teams. I personally recommend an agent who is part of a team because there are multiple people to be available to you so you can get answers quicker and there can be more flexibility for showings etc. One agent can only be one place at a time and we all know, no one is perfect at everything, so engaging a leader who knows how to get the right people on the bus in the right seat is example one, of someone who works like a pro and knows what they are doing.

#3 Experience – Experience doesn’t always mean an agent has been in the business for many years, it can also mean they have been hyper successful in this market. When you inquire about experience ask them what experience they have instead of how many years they have been in the business. Most area agents close less than 4 homes a year (If you have been in the business 20 years and you only sell 4 homes a year, possibly they do not have the drive you are looking for. If they have closed 20 or more in a year, this is someone who clearly understands hustle and must be having some success writing offers for their client.

#4 Strategy – Ask them what strategies they have for positioning the offers they write to be more desirable. They should know their plan like the back of their hand. Ask them to tell you specifically what strategies they use.

#5 Honesty – Ask them what you need to do or consider to position yourself to be a more desirable buyer and how long they think it might take for you to get into a home. If they tell you this is easy, and you need to do nothing and they can get you in a home immediately with no delay, I would be a little worried that they are not painting a true picture of todays market.

#2 STEP TWO- Next is to make sure you have the right lender! As you saw in my sample spread sheet, lender is one of the important items I recommend for my seller to consider. There are some lenders out there that simply have a HORRIBLE reputation, that agents cringe when they see the name. There are other lenders that are internet lenders that also give agents a reason to pause. Why? Well when there is no local person or branch 2 things happen, first they don’t always know the rules and guidelines of this state. Nor do they understand the contract terms and two there is no one live to go in and talk to if there is a problem. A reputable local lender is ALWAYS best, often the agent on the sellers side of the contract knows that company and their reputation, this is one place you can shine over others.

When having your lender issue your pre-qualification letter ask them to issue it for the highest amount you are qualified for (not just the amount you want to spend). This tells the seller look I am qualified well beyond the price of this home so I am not tettering on the edge of possibly failing to obtain loan commitment because I bought too high. This is another factor we consider when looking at offers. Knowing what the buyer qualifies for in comparison to the offer price, tells us how strong this buyer is.

#3 STEP THREE- Save up your money so you don’t have to ask for pre-paids and closing costs. It is REALLY hard to be competitive in a multiple offer situation if you are asking the seller to credit you pre-paids and closing costs. If you need these my advice is DO NOT look at any homes that have just hit the market. You will end up broken and disappointed. Why does this matter? Well let’s say you want to buy a $130,000 home. You need the seller to pay you $5000 in pre-paids at closing. In order for you offer to be a full price offer, you would need to offer $135,000.00 so the seller would net the $130,000, make sense? Now lets add to that multiple offers. Offers often go over list price in this market. So if buyer A offers $140,000 you would need to offer $145,000 to have the offers have the same financial end for the seller. Ok stay with me, here is the last piece of this. BUT if I am the seller and I have one offer for $140,000 and one Offer for $145,000 with $5 in closing costs why would I take the higher offer if it doesn’t mean more money for me? More importantly does the seller now have a greater risk of the home not appraising at a higher amount? Why would they take that risk for the same net? My last point on this is I am ALSO sending a message to the seller that I haven’t managed to plan or save for my home purchase, which could make me less appealing than another buyer who did. A buyer who doesn’t have money for prepaids and closing costs also might not have money for repairs that come up at inspection, making it a harder negotiation. I know this is hard to read/hear, but this is honesty. And you need to know this before you step into this lions den.

OK so not the key parts are taken care of in advance

  • Agent
  • Lender
  • Down payment and Closing costs

Let’s get to the offer

Many things play a part in crafting an attractive offer, below are some of the key items to understand and craft your offer plan around.

Multiple offers to consider
  • Price – It is true price is not always everything, but it sure helps!
  • Earnest Money – More is more
  • Closing Date – Sooner isn’t always better
  • Misc asks -STOP ASKING
  • Clean contract

Hopefully your agent has strategies to customize to your unique needs, again this is part of the preparation and conversations you should be having in advance of any offer with your representative. Each buyers unique needs can alter the best scenario.

Two other items to understand is escalation clauses and As-is offers.

Escalation clause – How does it work, how to make it work for you.

An escalation clause is a clause that escalates or accelrates the offer incrimentally. It is kind of like Ebay bidding. You set a cap and increase amounts and everyone puts thier offers out there. The highest offer starts the process, escalatin all others until we get to the highet possible price

Buyer One offers $200,000.

Buyer Two offers $201,000.

Buyer Three Offers $205,000

All 3 buyers have an escalation clause in place

Buyer Ones offer will escalate/accelerate in $1000 increments

Buyer Twos offers will escalate/accelerate in $1500 increments

Buyer Threes offer will escalate/accelerate in $500 increments

Buyer One has a Cap of $225,000

Buyer Two has a CAP $217,000.

Buyer Three Has a cap of $211,000

If the seller decides to take the HIGHEST offer, which is the highest offer and how much will that buyer pay?

If you said Buyer One was the highest offer you are correct.

If you said they paid $225,000 you were incorrect, they paid $218,000

The next highet offer was $217,000 and they agreed to escalate/accelerate their offer in $1000.00 increments.

Now this get s a little more complicated when you have to consider if they are asking for other things such as pre-paids and closing cost credits, home warranty etc, but you get the general idea of how it works. This is one of the strategies your agent might suggest. Know however this can work for or even against you as often times the seller wants to see everyones highest and best flat offer and will not consider a escalation type clause. This is why it is so important that you have implemented STEP 3, to keep this cleaner

As-is offers – Why would you do this?

If you are not a cash buyer you MUST find other ways to be competitive! Flexible closing dates and as-is terms are one of the few tools a buyer has in a multiple offer situation. The as-is offer still allows for the buyer to have a robust inspection process BUT there is an understanding they will NOT ask for any repairs. This can be risky as items might come up that the buyer simply can not afford to have repaired. If they terminate the contract the buyer will lose their inspection money. It is possible to still go to the seller and try to negotiate this repair but they have already said they will not fix anything as a part of the contract. This is also risky for the seller, who never wants the home to go back on the market after being listed as under contract, it could impact the next offer price. Again it is important to have an agent who can explain this process to you AND have a plan on how to best represent you.

This only scratches the surface of the nuances of today’s real estate market. Really what I am saying here is there is more to this process than just searching on Zillow and finding the one. You need a team surrounding you who knows what they are doing, takes time to educate you on the process that you TRUST to help you navigate these waters.

Want a buyer consultation to discuss your unique needs? – Call or text 314-963-7300

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