If you live in the Greater Seattle area, whether you are looking for an in-city condo, your first love’s nest, a view property or a stunning piece of waterfront, you will need a bullet-proof-offer to compete against other buyers. Not every offer has the same weight in the scale. As a buyer, it is pretty intimating to hear that the property you want to purchase has already 15 or more offers. You need to remember however that each one of these offers has its own set of strengths and weaknesses. The key in a multiple offer situation is to protect yourself while writing a very strong & “smooth” & enticing proposal. Here are the golden rules to help you in this process:
#1. Know your financial comfort zone & be prepared
One essential element in buying any type of hot property is to know one’s comfort zone and financing capabilities. And as such, the very first step is to talk to a trusted and experienced mortgage broker who will preapprove you. The lender will ask for your bank statements, income related information, and will pull your credit scores. If cash is an option, get your bank statements/proof of funds ready. Cash offers are more appealing to owners since closing will happen faster and without a bank appraisal.
In today’s fast market, being contingent on the sale of another property is not an option unless the micro market where you are buying is slow or the property in question has been on the market for a long period of time. As a general rule, waiting to find the rare gem to put your home on the market will not help you. Instead, find a rental place & put your home on the market. Armed with cash, you will be able to put a financially strong offer when you do find THE perfect place.
Another important fact: buying a home in a competing market is like buying an item at auction, you need to know where to stop the bidding. It is therefore wise to start looking at properties available at a lower price point than your preapproval letter maximum amount. Let’s say you are preapproved for $450,000, it may be wise to look for homes in the $380,000 to $400,000 price range. You will want to talk to a realtor expert in that area and specializing in the property type you are interested in to learn about that specific market. There is not one general market but many micro markets in any given area.
#2. Select the right agent for the task
You should select an agent specializing in one field and area: view home, waterfront, luxury, condo, targeted neighborhood…
You want the expert in the field not someone who is learning about a niche market or who is brand new in the business. Someone who knows (and preferably lives) in that geographical area. You will learn about properties ready to come on the market and all pitfalls or advantages about each one. It is not the time to select a friend who is just starting in the business or willing to drive 100 miles to get a sale (as you will need to see that home as soon as it comes on the market)! Get someone who will be a tough negotiator and will speak well on your behalf!
#3. Detective work
Once hired, your broker will have to play the “nice detective”. He/she will call the listing agent (representing the seller) to know about the goals and motivations of the owners. If the broker is willing to share this information, you will be able to solidify your offer by adding terms that will benefit the sellers: closing date preference, rent back option (the owner needs to stay a week in the home after closing the sale)…
It is always a good idea to have an inspection even when competing for a property. Have a pre-inspection with a home inspector before writing and submitting an offer.
#5. Offer Price
Once your agent will have determined the degree of “hotness” of the property & the local market and studied the % of asking price versus sold price for that property, I would suggest you start your offer at a higher level than the asking price. If other buyers write offers at the asking price and add an escalation clause your offer will look better from the get-go. Escalation clauses: they are used in competing situations. A buyer will offer to pay an upfront price and add increments of $… over any equal competing offers up to a maximum amount. For example: the house is for sale for $400,000. You are willing to pay up to $450,000 and so may want to start at $425,000 and add an escalation clause up to $450,000 in increments of $3,278. The listing broker will keep adding the $3,278 amount on any offer higher than the $425k and will stop at the $450,000.
While deciding on your price comfort zone, understand at which price point you are willing to lose the home where you won’t have remorse if your offer doesn’t get accepted.
#6. Earnest Money
The earnest money is showing that you are a strong buyer. This money will be put in an escrow account and will be cashed once the sale is agreed upon. This is a guarantee for the seller. If the buyer were to change his/her mind at the last minute, he/she would most likely lose his/her earnest money. EM is used at closing and deducted from final closing costs.
The higher the earnest money, the best.They range from 1% to 3% of the purchase price. Selling price $400,000…. Earnest money $10,000 to $15,000
#7. Escrow and Title
Select the escrow and title companies recommended by the listing broker. Generally title is chosen by the seller (since they pay for the insurance coverage guaranteeing a clear title) while escrow is by the buyer’s agent. In a multiple offer situation, you will want to pick the escrow recommended by the owner’s agent.
#8. Love letter
When touring a property, if the owners still live in the home, gather clues of the seller’s lifestyle. By playing detective, you may find out what you have in common with the owners. I would suggest you or your agent use these in a letter thanking agent and seller to review your offer and laying out the advantages of working with you, your agent. You need to show how smooth the process will go. Be careful however not to disclose some personal information that may not play to your advantage. Be careful with your words.
Each contingency (inspection, financing & title) are ways for you to get out of the transaction once your offer has been accepted. The sellers will want in his/her offer selection to pick the buyers with the shortest contingency period especially the inspection. Know that any timeline with 5 days or less don’t count weekends.
#10. Time is always “of the essence”
Be ready to initial or sign any changes quickly to make sure that another better offer doesn’t reach the seller before you have mutual acceptance.
#11. Be willing to do what it takes
If you feel deep down that this is the right house for you, make sure to write the cleanest and best offer possible, you will have no regret later on.