In last week's Real Estate Tip of the Week, I discussed the escalation clause/addendum and how it can potentially help a buyer have the winning offer in a multiple offer situation. If you are looking to buy a home in the DC Metro area, you are probably aware that it is an extremely competitive market. Therefore, you will need every advantage you can get to win your dream home at the right price. Besides the escalation clause talked about last week, there are several things that you and your Realtor can do to make your offer standout in a noncompetitive or multiple offer situation.
When reviewing multiple offers, a seller and their Realtor, will look at several factors besides just the offered sales price. The typical seller wants to get as much money as possible for their home with the fewest number of roadblocks ("hurdles") that can destroy the transaction from closing. These "hurdles" are the terms and contingencies in the contract. The fewer of them you have, the better it looks in the eyes of the seller.
You can treat the time from contract acceptance to closing like the popular Track & Field event, the 110M hurdles. Each contingency you have in the contract represents a hurdle that you have to get past in order to get to the finish line. The more contingencies you have, the harder and slower it is to get to the finish line. Imagine a bad contingency as a really high hurdle and a good contingency as a really low hurdle. Sometimes there are certain contingencies that make it really hard to finish the race.
Now, I am not saying to remove all the contingencies when buying a house because it is important to protect yourself. However, there are certain situations where the terms of a contingency can be altered to reduce the amount of risk for the seller.
So here are a few small ways to craft your offer to win the race (multiple offer situation) and reduce the risk of not making it to settlement.
Remove the Appraisal Contingency
The appraisal contingency is added to a contract to make sure the home is worth how much it is being sold for. You shouldn't always remove this contingency, but it can be a good one to remove if you are looking to buy a home such as a condo where there are exact comparables. For example, if you are buying a 2 BD/BTH condo for $500,000 in a condo building where the exact floor plan sold a few months earlier for $500,000, there's a 99.99% chance it will appraise for the list price. You have to make sure to compare all of the features but since most condos are the same inside, it can be an easy contingency to remove from the contract. Your lender will still probably require you to get an appraisal, but by removing the appraisal contingency, it's another potential hurdle that you remove in the eyes of the seller.
Accommodating the Seller's Timeline
Majority of sellers do not want to have two mortgages at once or sell their home before having a home to move into. Therefore, when you are about to submit an offer, have your Realtor talk to the listing agent to see what the Seller's timeline is. If you have a flexible schedule, try to accommodate the seller's needs.
Sale and leaseback
One way to accommodate the seller's needs is to do a sale and leaseback. This is when you buy the home and lease it back to the seller for an agreed upon time. It allows the buyer to get the home they want while allowing the seller the needed time to find another house or move out.
Setting the Home Inspection Contingency Length Equal to the Condo Disclosure Deadline
When buying a condo, the buyer has to be given a condo disclosure packet. Once receiving these documents, they have three days to decide whether or not they wish to cancel the purchase of the property. Thus, by making the home inspection contingency length the same as the condo disclosure contingency (3 days), you are minimizing the risk for the seller. If you have a good home inspector, three days shouldn't be an issue.
Removing the Finance Contingency
If you have a trusted lender, have great credit, and are very confident that you will receive financing for the purchase of the home, consider removing the finance contingency. Buyers don't always have this luxury, but if you can offer all cash for the home, that's even better.
Offer a High Earnest Money Deposit
When you submit an offer, you have to include an earnest money deposit (typically 1-2% of the sales price) as a way to prove to the seller that you are serious about the transaction. If you violate the contract, the seller is able to keep this money. One way to show that you are a very strong contender and give the seller confidence is to offer a large earnest money deposit such as 5%. If your contract is accepted, this money will be applied towards the final sales price.
Have Short Timelines
If you have to include a contingency in the sales contract, have a short deadline for it. For example, if you need a home inspection, make the deadline for it 5 days instead of 10 days. The less days a contingency exists, the better chance it has of being removed from the contract.
Win Before the Bidding War Starts
A great way to win a bidding war, is to avoid it all together. You can sometimes do this by getting to the seller early and offering them exactly what they want.
Create a Personal Connection
A personal letter from the buyer to the seller can sometimes make the difference between a winning and losing offer. It never hurts to be sentimental!
Sadly at the end of the day, the offer price might be the only thing the seller considers when reviewing an offer or multiple offers. So while removing or strengthening contingencies will make your offer more appealing, it is never guaranteed to work. If you end up on the losing side, stay positive, there's always another house!