After you’ve found the perfect house in a hot market
A great Westgate Tacoma house hit the market for some clients. This was the right area, close to their kids and grandkids, the right size, and comfortably within budget. We met at the house. It was superior to any we had seen in the price range. They wanted to write an offer immediately. I spoke to their son during this process. He thanked me, relief in his voice. He was pleased to hear his mother so happy about a home.
The only problem was this was kind of a set up.
A strategy, particularly with bank owned homes, is to lure several buyers with an artificially low asking price. In this case the seller established a deadline to review offers, allowing time for interest to log jam. But rather than choosing one offer, they notified everyone that we were in a multiple offer situation and put out a call for “highest and best”. Highest and best basically means putting your very best offer on the table—the highest price and best terms you are willing to offer, leaving nothing to negotiate later, because there is no later.
This couple resolved quickly that if the house went more than $10,000 over asking then it wasn’t meant to be. But often buyers flounder for a time as they try to make sense of the rules of this game in which they find themselves. It is common to start with the basics. “How much are the other offers?” many buyers ask, believing this is an auction. We aren’t provided that information and some offers will change before the deadline regardless. “Then how do I know how much to bid?”
“How much do I bid?”
All buyers smitten with this house are now supposed to search their soul to find this elusive “highest” they are willing to pay; the magic number beyond which they could let this home go. Buyers can start by throwing out what they think that number might be to test it. Here is the test; if told later that the winning offer was $100 higher than theirs would they be upset? Would they have come up another $100? How about $1000? Once a buyer settles on a number it is good to test it again by looking at the comparable sales. If it is over what the comps suggest, they should be aware of it. They may want the house; but they might not want it enough to overpay.
We have talked about “highest” part, but the seller’s decision may not turn on price alone. Sellers will consider other terms. Some of those cost nothing to improve. Here are some tips for presenting the best “best”.
- Have your agent investigate what factors might be important to the seller. Is a fast close ideal? Usually it is, so talk with your lender to find out how fast you can close. Be flexible with possession date. If it will benefit the seller, weigh the risks and benefits of allowing them to lease back after closing.This can be valuable to a seller.
- Get Pre-approved—talk to a lender BEFORE you are in this situation. Have your letter in hand. Even if you do not find yourself in a competitive situation, a pre-approval letter will strengthen your offer
- Increase Down Payment–a larger down payment will appear stronger and more likely to go through than a smaller one.
- Minimize Contingencies. Think about shortening financing contingency, or not making the offer contingent on financing. Consider doing your home inspection up front, before making the offer. Although pre-inspecting is not common in our market and does involve a cost (approximately $400) it is certainly a way to set your offer apart. If you have pre-inspected and are comfortable with the findings it is then possible to waive the inspection contingency which eliminates the most notorious deal-breaker and eases the seller’s mind. I would NOT recommend skipping a home inspection altogether.
- Offer 1% or More Earnest Money. Earnest money conveys to the seller that you are earnest. You offer this up front. It may be forfeited if you later back out for reasons other than contract contingencies.
- Letter to the seller—although most sellers will make the decision based on pragmatic factors, in some cases it can be helpful to write a letter with your offer. Frankly, I have seen letters that backfired. One letter focused on the buyer’s three beloved cats. This particular seller hated cats. He didn’t even like the thought of cats living in his house. It is generally best to limit highly personal information and focus on how special the house is, how excited you are about finding it. The seller probably agrees and wants to choose someone motivated to close.
Ten thousand over asking price was just not enough for my clients to win the Westgate house. As they said up front, it just wasn’t meant to be. We are all comfortable with that. With patience we will find them a great home.