There are Still Competitive Offer Situations in Some Parts of the Country
Although messages like this are becoming more rare as the US market shifts, I recently received a note from a reader in Pennsylvania who has been trying to buy a house since the beginning of spring. They have made offers on 5 properties and just yesterday lost another one due to highly competitive multiple offers. As they have gotten deeper into the home buying process, they have become more aggressive with each offer but still have not been successful. They reached out to ask what they could do to make a more competitive offer for future homes so that they can increase their chances of winning.
Here are the strategies I shared with them, along with some context around each one.
Offer a Strong Price with Appraisal Language
You can certainly make a competitive offer with a large number, but if you are not paying cash, the seller may see that number as unrealistic unless you add language about the appraisal. If you are financing the purchase, the lender will order an appraisal and the loan will be based on that value. If the appraisal comes in lower than your offer, you could back out or renegotiate unless you add terms to address it.
Consider including an appraisal gap clause. For example, if a home is listed at $500,000 and you offer $600,000 with a $50,000 appraisal guarantee, you are saying you will pay $50,000 over the appraised value but no higher than the offer sale price even if the appraisal is lower. But you must have that extra money available in addition to your down payment. Remember, the bank will only lend based on the appraised value.
If you put down less than 20 percent, you may also have to pay private mortgage insurance. So be sure to evaluate the financial implications of offering over the list price.
All-Cash Offers
Cash offers are still a powerful tool. They eliminate the need for an appraisal altogether. Many cash buyers are using family money and refinancing shortly after closing to pay their family back. This is a common strategy in today’s market and allows for a more flexible offer.
Use an Escalation Clause
If you do not want to throw out a huge number blindly, consider using an escalation clause. You could say you are willing to pay $5,000 over the highest verifiable offer up to a maximum. This allows you to be aggressive while setting a ceiling.
Sellers may have mixed feelings about escalation clauses. Some mature sellers see them as unfair or confusing. If you use one, make sure your offer is clean and clearly written.
Reduce or Adjust Contingencies
To make your offer more appealing, you could reduce or modify your contingencies. This might mean shortening timelines or removing certain clauses. For instance, instead of a 5 day attorney review, offer 3 days. Or clarify that your inspection is for information only.
Although I rarely recommend waiving altogether, you could write a “pass/fail” clause or a “coupon code” clause. This means you will not negotiate repairs unless issues exceed a certain dollar amount like $5,000 or $10,000.
Increase Your Earnest Money
A larger earnest money deposit signals to the seller that you are serious. While amounts vary, five to ten percent of the purchase price is often enough to reassure the seller that you will not walk away casually.
Be Flexible on Closing and Possession
Aligning your timeline with the seller’s preferences makes your offer more attractive. If they need more time in the house, offer occupancy after closing. You could even offer free rent if it fits your budget. However, always collect a deposit in escrow as protection against damage or delays. A few thousand dollars is standard and gives you recourse if something goes wrong.
Your Real Estate Agent Matters
Perhaps the most underrated tool is your real estate agent. A well-connected, well-respected agent can get insight into the seller’s needs and give you a competitive edge. Listing agents may favor offers from buyers represented by professionals they trust.
In summary, these are some of the most effective ways to make your offer stand out in a competitive market. Know your limits, consult your lender, and be sure your agent is advocating effectively for you.
Want more strategies like this to make a competitive offer? Reach out and I’ll connect you with a trusted real estate agent in your area who can help you win your next offer.
