You already know our nation is in the midst of a serious housing crunch. Last year, a lack of inventory and soaring prices left many would-be homebuyers feeling pinched. But now, with interest rates climbing, many of them are also feeling desperate to lock in a mortgage—which has only added fuel to the fire. It begs a very difficult question to answer – how do you write a winning offer?
I first touched on this topic back in 2018 in my article, “14 Strategies To Win A Multiple Offer Situation“. I’m revisiting the topic now because this has been the most challenging real estate market I’ve ever worked through… and that includes the financial meltdown of 2008-2012.
Fortunately, if you’re a buyer struggling to find a home, we have some good news. While it’s true that higher mortgage rates can decrease your purchasing budget, there are additional ways to compete in a hot market.
Yes, a high offer price gets attention. But most sellers consider a variety of factors when evaluating an offer. With that in mind, here are five ways to write a winning offer you can utilize to sweeten your proposal and outshine your competition.
We can help you evaluate each tactic to create a strong offer designed to win—without giving away the farm.
1. Demonstrate Solid Financing
If a home sale falls through no one gets paid. That’s why sellers (and their listing agents) favor offers with a high probability of closing. This is why solid financing is Write a Winning Offer Tip #1.
Sellers particularly love all-cash offers because there’s no chance of financing issues cropping up at the last moment. But don’t despair if you can’t pay cash for your home. According to the National Association of Realtors, only about 1 in 4 home purchases are all-cash deals. The vast majority of home purchases are financed with a mortgage.
If sellers are assured that financing will come through, buying with a mortgage doesn’t have to be a big disadvantage. The most important step you can take as a buyer is to get pre-approved before you start looking for homes. A pre-approval letter shows sellers that you are serious about buying and that you will be able to make good on your offer.
You’ll need to provide a lender a few things in order to obtain a pre-approval:
- Last month of pay stubs
- Previous 2 months of bank statements
- Last 2 years of tax returns
- If you have any other sources of regular income, you’ll need to provide that information, too. Examples include:
- A structured settlement
- Investment account statements (if you use those funds on a regular basis)
- Child support payments
It’s also important to consider the reputation of your lender. While sellers may not know or care about a lender’s reputation, their agents often do. Some lenders are easier to work with than others. If you’re unsure who to choose, we can refer you to great lenders that are easy to work with.
2. Put Down a Sizable Deposit
Money talks and BS walks. If you want to show sellers you’re serious you need “skin in the game”. That means putting down a large earnest money deposit. All else being equal, the offer with the most money down wins. This is why Write a Winning Offer Tip #2 is putting down a sizable down payment.
Earnest money is a deposit held in escrow by a title company or the seller’s broker or lawyer. This deposit will be applied to the final purchase price. If the sale falls through, the buyer may lose some or all of that deposit.
Earnest money deposits are typically around 5% of the sale price in MA and RI. Offering a higher deposit can help demonstrate to the seller that you’re serious about the property. However, this strategy can also be risky. We can help you determine an appropriate deposit to offer based on your specific circumstances.
3. Ask for Few (or No) Contingencies
In today’s real estate market, nearly any contingency is a way to get your offer thrown out. When a seller has many offers to evaluate, it can be very difficult to compare one offer to another. This is why Tip #3 to write a winning offer is probably the most important tip we can share right now.
Most real estate offers include contingencies. Contingencies are clauses that allow a party to back out of the agreement if certain conditions are not met. These contingencies appear in the purchase agreement and must be accepted by both parties to be legally binding.
Common contingencies include:
- Financing: A financing contingency gives the buyer a window of time to secure a mortgage. If they are unable to do so, they can withdraw from the purchase and the seller can move on to other buyers.
- Inspection: An inspection contingency gives the buyer the opportunity to have the home professionally inspected. A typical home inspection looks for issues with the structure, wiring, plumbing, etc. Typically, the seller may choose whether or not to remediate those issues; if they do not, the buyer may withdraw from the contract.
- Appraisal: No lender will want to offer a mortgage on a home that’s more than the home is worth. An appraisal is an “independent assessment of value” ordered by the lender. If an appraisal comes in low, the seller may be asked to renegotiate the contract.
- Sale of a prior home: Some buyers cannot afford to purchase a new home until they sell their previous one. If the buyer can’t sell their current home within a specific time, this contingency allows them to back out without penalty.
Since contingencies reduce the likelihood that a sale will go through, they generally make an offer less desirable to the seller. The more contingencies that are included, the weaker the offer becomes. Therefore, buyers in a competitive market often volunteer to waive certain contingencies.
Contingencies in Today’s Market
In today’s market, it’s not uncommon to see a buyer waive not just the inspection but also the appraisal contingency. If they don’t waive the appraisal all together, they may offer “appraisal gap coverage”. Gap coverage is when a buyer declares they will come out of pocket if the property doesn’t appraise. The amount of the gap coverage is negotiable.
It’s very important to make these decisions carefully and recognize the risks of doing so. A buyer who chooses to waive a home inspection may find out too late that the home requires extensive renovations. A buyer who waives the appraisal may risk their mortgage falling through. Backing out of a home purchase without the protection of a contingency means you may lose your earnest money deposit. We can help you assess the risks and benefits involved.
4. Offer a Flexible Closing Date and/or Leaseback Option
When it comes to selling a house, money isn’t everything. People sell their homes for a wide variety of reasons. Flexible terms that work with their personal situations can sometimes make all the difference. If a seller is in the process of planning a significant move, they may prefer a longer closing timeline that gives them time to find housing in their new location.
Similarly, short-term leaseback options, in which the sale is completed but the seller retains the right to rent the home for a specified period of time, can be compelling. These arrangements enable the seller to use the money from the sale of their home to purchase their next house. A leaseback agreement also makes it possible for them to avoid moving twice.
Tip #4 to write a winning offer is to consider flexible closing dates and/or offer a leaseback option. These tools can provide a powerful advantage for first-time homebuyers. A month-to-month lease, for example, may allow you to offer a more flexible timeline than other buyers.
Of course, the value of these terms depends on the seller’s situation. We can reach out to the listing agent to find out the seller’s preferred terms. We would then collaborate with you to write a compelling offer that works for both parties.
5. Work With a Skilled Buyer’s Agent
In this ultra-competitive real estate market, one of the greatest advantages you can give yourself is to work with a skilled and trustworthy real estate professional. We will make sure you fully understand the process and help you submit an appealing offer without taking on too much risk.
Plus, we know how to write a winning offer that is designed to win over both the seller and their listing agent. The truth is, listing agents play a huge role in helping sellers evaluate offers. They want to work with skilled buyer’s agents who are professional, communicative, and courteous.
Once your offer is accepted, we’ll handle any further negotiations and coordinate all the details involved in your home purchase. You’ll have a knowledgeable, licensed advocate on your side watching out for your best interests every step of the way.
In many cases, a competitive offer doesn’t need to be all-cash, contingency-free, or significantly above asking price. But if you’re serious about buying a home in today’s market, it’s important to consider what you can do to sweeten the deal.
If you’re a buyer, we can help you compete in today’s market without getting steamrolled. And if you’re a seller, we can help you evaluate offers by taking all the relevant factors into account. Contact us today to schedule a free consultation.