A hot seller’s market means that sellers have the advantage over buyers when it comes to the sale of their home (learn more about a seller’s market here). However, that doesn’t mean there aren’t things you can do as a buyer in order to still be competitive in a multiple offer situation. Here are my 10 tips for making the best offer in a seller’s market:
- Get full lender approval before making an offer
Full lender approval is different from getting pre-approved. You can get a pre-approval issued within minutes of an application. But full lender approval usually takes 1-2 weeks of underwriting. Getting this done before you have a contract means that all the lender needs in order to close is an appraisal, survey, and final underwriting.
A full lender approval can provide more confidence to a seller and also cut down your closing time by 1-2 weeks! If you are ready to start this process, check out my list of recommended lenders here.
- Make your highest and best offer from the beginning
In a slower market, you can usually offer a little bit lower in order to negotiate, especially when a house has been sitting on the market for. But when there is a high chance for multiple offers, you want to put your best foot forward from the beginning. This means, at minimum, meeting the demands of the seller in terms of price, length of closing, option money, etc.
Give the sellers what they’re asking or above what they’re asking. If you are not comfortable with that, then offer as close to what they’re asking as you feel comfortable with. At the end of the day, know that if your offer does not get accepted that you did not hold anything back.
- Increase your earnest money commitment
There is no set amount of earnest money that you are required to offer since it is always negotiable, but most people offer around 1%. That said, I recommend offering 1.5-2%. In my opinion, this is a no-brainer since this money is credited to the sale or refunded to you unless you back out outside of your option period or financing contingency period. So the only real risk of losing this money is if you get cold feet.
- Increase your option money commitment
Same as earnest money, there is no set amount of option money that you are required to offer, since it is always negotiable, but most people offer $10-20/day. I recommend offering $50/day or just $500 flat. The difference between option money and earnest money is that option money is NOT refundable if you back out. However, it can be credited to the sale. So again, if you move forward, there’s no additional cost to you.
- Shorten your option period
Instead of a 7-10 day option period, reduce it to 3-5. The biggest challenge, of course, will be getting your inspection done quickly. So I would recommend having 3-4 inspectors on your list of contacts who you can call to get scheduled within 24 hours of offer acceptance. You can review my list of recommended inspectors here. The faster a contract can move from option pending to pending, the better it is for a seller!
- Offer to close as fast as possible
Consult your lender but most lenders should be able to close around 30 days and some can even close as fast as 14-21 days if the lender has already started (or completed) the buyer approval process mentioned in Tip 1.
- Offer a leaseback option for sellers
This one will only apply when the sellers are living in the home, but a seller’s temporary lease is a huge convenience to the sellers if they intend on living in the home up until closing! Oftentimes, sellers are also buying which means they have to manage two transactions at once AND try to coordinate them perfectly. Giving the sellers a few days or even a week to move everything out after they receive their funds from closing is a huge service to them and one that is often overlooked.
- Do not ask for extras or contributions
Do not ask the sellers to pay for a home warranty or survey. You can still get a home warranty, and you will need to have a survey if the property does not have one, but plan to pay the $500-600/ea for these services. Additionally, do not ask for seller contributions. A smart seller will look not only at the offer price, but the net sheet which will show the difference between two same price offers where one asks for these additional items and another does not.
- Offer to pay for items normally covered by sellers
Along with not asking the sellers to pay for certain items that a buyer would often pay for, offer to pay for items that the seller would normally pay for. This includes the owner’s title policy (usually about 0.75% of contract price), any non-realty items, HOA transfer fees, etc. Again, a smart seller will look at the net sheet and when they see that their net looks closer to their asking price because they do not have to pay for these items, it will help your chances.
- Be flexible
Last but not least, be ready to make changes to any of the items listed above! In some cases, for example, closing in two weeks is not in the best interest of the seller. They might need a minimum of 30 days. So if you find out that the terms that the seller wants are different from the advice given above, be ready to pivot! Buying in a seller’s market requires a lot of flexibility.
In Conclusion
Whatever you decide to offer, you want to make sure you feel good about your offer and that you did not leave anything on the table. I’ve had clients hold back thinking their offer was “good enough” and that the sellers could counter it if they wanted to only to be heartbroken when they missed out knowing they could have offered more. Learn from their mistakes!
If you are looking to buy during this season, take this advice and schedule a time for us to speak when you’re ready to start making offers!