In a sellers market, where multiple offers are the norm, making the strongest offer is essential to successful home buying. But what makes an offer strong? The highest price isn't always the winner.
Price can be the sellers' first priority, but it isn't always, and its rarely the only concern. But by itself, price can be problematic. Too low and other offers will win. Too high and the home may not appraise, jeopardizing the financing. The first step in determining the price for your offer is knowing where the market is. This can be tricky, giving that winning bid amounts typically are revealed until the property closes, usually 5-6 weeks after contract. In a fast changing market this can mean that available data is out of date. Out of date data also impact appraisals, making fast changing markets particularly prone to deals falling through over financing.
Strong offers avoid FHA loans (which contain an appraisal requirement) and have a large amount of down-payment, which can cover a certain amount of appraisal gap. Explicit language in the offer stating the buyer is willing to cover that gap up to a certain amount significantly strengthens an offer as well. If you are unable, or unwilling to cover any appraisal gap, you may be limited to offers at list price. This could mean a considerable spell on the sidelines of the market.
I never, ever advise clients to waive inspections. I even advise my contractor/investor clients to still check for environmental hazards. With that said, there are still things you can do to strengthen an offer with regards to inspections. First, in a strong seller's market, only significant health, safety and structural deficiencies should be raised. Adding language to that effect assures sellers you will not try to nickel and dime them. A second approach is to waive the first $X of inspection item costs. For example you might offer to waive the first $1,000 of any items that are revealed in an inspection. In that case, if the inspection uncovers mold in the attic that requires $1,200 in remediation, the seller is only on the hook for $200, the buyer pays the first $1,000.
A third approach is to purchase a home warranty for the home. For items that are approaching their maximum life, but still working, a home warranty can provide some assurance to the buyer that they won't face a hefty repair or replacement only a few months after purchasing their home. The seller can be asked to cover the cost of the home warranty, although in a strong seller's market they may not be willing to make that concession.
Often the timing of closing is as important, if not more important than price for sellers. The key to a strong offer is paying attention to the seller's stated desires. If the listing indicates a specific closing date, or indicates the sellers are asking for a leaseback option or contingency on their finding a home, flexibility will be key. On the other hand, some sellers are looking for the fastest possible close. In such cases it is important to know your lender's timeline and how quickly they can close. One key difference is that a pre-approval letter, instead of a pre-qualification letter, can take a week or two off the process, allowing you to close in 30 days or less. There are also programs like bridge loans, that would allow you to close on a new home before your current home sells. Speaking to a variety of lenders, or a mortgage broker with a wide range of lending partners will help you prepare for a strong offer based on timing as well as price.
In a strong seller's market, additional contingencies weaken an offer. As mentioned above, if you have a home to sell, look into financing options that will allow you to close before the sale of your current home, to avoid a sale contingency. Contingencies regarding furnishings or fixtures are likely to annoy the seller, and entice them to look to the next offer, and should be avoided. One possible exception is an estate sale or someone moving out of state, who might appreciate an offer to take the home without the seller having to clean out items they are not taking or need to dispose of.
In a strong sellers market like we have seen in 2022 (and 2021 and 2020 for that matter), the strongest offer wins, and that doesn't always boil down to price. Consider appraisal gaps, limiting (but not eliminating) inspections, flexibility in closing and minimizing contingencies to improve your chances of finding a home. If you're looking for a home please give me a call or text at 973-462-4079, I'm happy to help you find a great home and make a strong offer!