How We Create a Winning Offer in a Competitive Housing Market
The housing market in Grand Rapids, as well as many other parts of the country, has been very competitive over the past few years. Low inventory and high demand makes putting in an offer on a house nerve-wracking and sometimes you lose the house because there are so many offers. Over the 25 plus years we have been working in real estate, we have developed strong strategies to help our clients win in multiple offer situations. Below is a list of our 8 top strategies to use to help you win with your offer.
1. Escalation Clause:
This is one of the best ways to outbid the competition without overpaying. We will talk about the top dollar you are willing to pay for the property. This is the amount you would not be disappointed if someone paid more and got the home instead of you. You write full price with an escalation clause up to the top number or cap price you would pay. The escalation cap and increments are up to you. For example: asking price is $250,000, there are 10 offers. You write a full price offer at $250,000 with an escalation of $1,500 more than any other offer up to $265,000. If the highest competing bid is $260,000, we win with $261,500. Our bid was escalated to $1,500 higher then any bid, max out at $265,000. Note we did not have to pay $265,000. It only escalated high enough to beat competing offers.
2. Appraisal Gap:
This is a biggie! Some homes are selling higher than an appraiser can appraise it. What does this mean? It means it might be the highest sale price the neighborhood has received. It doesn’t mean the house is not worth that amount. It just means the appraiser has no comparisons to share, proving your offer price. An appraisal gap says to the seller, “I know we are offering $10,000-20,000 over asking price, and it’s going to be the highest price sold recently in the neighborhood, but we are willing to pay $2,500-$5,000 more than the appraisal price.” Example: Listing price $250,000. 5 offers come in. We write $265,000 with a $2,500 appraisal gap coverage. Appraiser only finds comparables up to $260,000 in the neighborhood and appraises it at that price. This tells the seller we will buy it at $262,500, $2,500 over appraisal value. If it appraises at $262,500, we pay $265,000. If it appraises at $265,000, we only pay $265,000 because that is our full offer amount. As a note, an appraisal gap amount can not be wrapped in your mortgage and would have to be extra cash on hand.
3. Inspections:
- Pre-scheduling ahead of time for a day or 2 after the offer deadline can help you stand out.
- Keep a flexible, open mind, only search out major hazards/concerns.
- Waive Inspections; not recommended but occasionally suggested.
- Shorten inspection window; 3 days instead of 10 day window.
4. Top Lenders in town, personal call to listing agent:
Our lenders personalize the approval letter to the specific home for your offer.
5. Higher Earnest Money Deposit (EMD):
The average is 1% of the purchase price. Increasing from $2,500 to $5,000 shows you are serious and have the strength of a down payment and savings! If the competing offers go lower, it will be just one more item that gives us the edge!
6. Complete packet presentation:
Include Purchase Agreement, Seller’s Disclosure, Lead Based Paint Disclosure, Copy of EMD, cover letter, pre-approval letter with address specified in the letter.
7. Possession flexibility
Maybe the seller needs extra time to move because they are building their next home and don’t want to move twice. Giving them 45 days possession after close vs. 15 could be the reason they pick our offer! Communication is key!
8. Over the top communication between Buyer Agent to Seller Agent:
Many agents just send the offer over and don’t ask what is important to the seller. By asking what the seller is looking for, we can help create a stronger offer and show that we want to work with them to do what is best for both parties.
There you have it! We are constantly reading the market to know when to use each of these options! We can’t guarantee that you will win each bid, but if we don’t win, we will come in a close 2nd or 3rd. We will be able to sleep at night, knowing we did our best, and then move on to the next home!
