How to Make Your Offer More Competitive
When you make an offer to purchase a house, you may run into other buyers competing for the same property. In these multiple offers situation, you cannot negotiate too aggressively and have to make your offer stands out from other offers. Here are some of the main levers that you can adjust to make your offer more competitive.
10 Ways to Make Your Offer to Purchase Stronger
#1 – Sales Price
This is the most important consideration when competing against other offers, and that is why we list it first.
- Weaker Offer: More than 2% below fair market value. You will almost always lose in a competitive bid situation unless the listing price is way too high.
- Standard: At fair market value.
- Stronger Offer: Above fair market value. Your Realtor can check to see the average Sales-to-List price of similar properties in the area in the same price range. This will give you an indication of how much above the fair market value you might have to go to win the contract.
Instead of offering a fixed sales price, you can also utilize an Escalation Addendum, which informs the Seller that you are willing to go up above your initial offer price up to a maximum amount to beat other offers by $500 or $1,000 increment. For example, you could offer $400,000 and escalated up to $425,000 in a $1,000 increment. If the Seller received a $420,000 offer from another buyer, your offer automatically increases to $421,000.
#2 – Seller’s Subsidy
Depending on the type of purchase and loan, you could ask the Seller to help you pay for closing costs and other expenses up to 3% of the Sales Price.
- Weaker Offer: Ask for the maximum credit of 3%. Note: some loans allow you to ask for more than 3%.
- Standard: Ask for any amount of credit up to 3%.
- Stronger Offer: No credit.
In a multiple offers situation, your best chance to win is to ask for no credit. However, you may need some Seller’s Subsidy to close due to your financial situation. If this is the case, then ask for the smallest amount you need to make the numbers work for you. There is no point in winning the contract if you can’t close the deal!
#3 – Loan Type and Lender
Cash is king. If all else is equal, a cash offer is always the strongest offer because the Buyer can usually close the deal faster and there are fewer contingencies involved, e.g., a cash buyer has no financing contingency and may waive the appraisal contingency.
- Weaker Offer: 0% down loan, VHDA loan, and FHA loan are perceived to be weaker because a buyer utilizing these loans may run into some issues during the loan application process.
- Standard: VA loan and a Conventional loan with less than 20% down payment. Some Sellers do not like offers with a VA loan because of their stricter appraisal process.
- Stronger Offer: Cash or a Conventional loan with 20%+ down payment.
It is also worth noting that the Lender you use can make a huge difference. Some well-known lenders have a reputation of taking longer than 30 days to close and not communicating well with all stakeholders. If you are using one of these lenders, you should definitely switch to a local lender recommended by your Realtor.
#4 – Settlement Date
Unless the Seller needs more time to live in the house, the faster you can close the sales, the stronger your offer will be. A cash offer can typically close in as little as seven days if you are not waiting for an appraisal or the HOA/Condo documents. A faster lender can get a Conventional loan done in about 21 days. Finally, the most typical closing time is about 30-45 days.
- Weaker Offer: 60 days or longer closing time.
- Standard: 30-45 days.
- Stronger Offer: 21 days or less.
#5 – Inspection Contingency
Inspection is a safety net for home buyers, but it is just another barrier for Sellers. In a normal situation, you would request a home inspection period, followed by a negotiation period where you ask the Sellers to do important repairs. In a competitive situation, you may not have the luxury of doing a standard inspection.
- Weaker Offer: Asking for a longer than average (e.g., 7-10 days) inspection period, or requesting to do more than just the standard home inspection and radon testing.
- Standard: 7-10 days home inspection and radon testing with the ability to negotiate for repairs.
- Stronger Offer: 5-7 days home inspection with the ability to void the contract only, and no radon testing. In a more competitive situation, some buyers may opt to do an inspection before submitting an offer.
- Strongest Offer: No inspection of any kind. [not recommended]
#6 – Earnest Money Deposit
As part of submitting an offer, you are required to include an Ernest Money Deposit (EMD). The Escrow Agent keeps this money until the closing is completed, or until the contract is voided. At closing, the EMD is credited back to you and can be used to pay toward your closing costs or down payment. If the contract is voided, you and the Seller have to negotiate on how the money will be distributed. If the contract is voided using one of the many contingencies, the money is usually released back in full to you.
- Weaker Offer: EMD lower than 1% of the Sales Price
- Standard: EMD equal to 1% of the Sales Price
- Stronger Offer: EMD greater than 1% of the Sales Price
#7 – Appraisal Contingency
Your lender does not automatically issue a loan according to what you and the Seller agreed to. They do their due diligence in the form of an appraisal. As part of the loan application process, you will be paying your lender to order an appraisal on your behalf. If the appraised value is higher than the Sales Price, then all is good. If the appraised value is lower than the Sales Price, you and the Seller renegotiate the Sales Price, and if an agreement cannot be reached, either Party can void the contract — this creates a failure point for the Seller.
- Weaker Offer: Appraisal contingency period longer than 30 days.
- Standard: Appraisal contingency period of 21-30 days.
- Stronger Offer: Short appraisal contingency period with a guarantee the Buyer will cover a specific amount of shortfall in case of a low appraisal. For example, let’s say you guaranteed up to $10,000 in appraisal shortfall. If the Sales Price is $400,000 and the appraised value comes in at $395,000, then you would pay $5,000 out of pocket (as long as you can still qualify for the loan) and the deal lives on. If the shortfall is greater than $10,000, the parties can negotiate to a mutually agreeable outcome or void the contract.
- Strongest Offer: No appraisal contingency. This means you will cover any amount of appraisal shortfall. [not recommended]
#8 – Financing Contingency
As mentioned earlier, it takes between 21 days to 45 days to complete your loan application process. A financing contingency allows you to void the contract and get your EMD back in case you cannot qualify for the loan.
- Weaker Offer: Financing contingency period longer than 30 days.
- Standard: Financing contingency period of 21-30 days.
- Stronger Offer: Financing contingency period shorter than 21 days. Also, some lenders offer Upfront Underwriting, which effectively guaranteed that the loan would be approved. This could allow you to eliminate the financing contingency, thus making your offer stronger.
- Strongest Offer: No financing contingency. This means you could lose your EMD if you cannot qualify for the loan for any reason. [not recommended]
#9 – Home Warranty and Termite Inspection
When you make an offer, you have the option of asking the Seller to pay for a home warranty (it costs about $450-650) and for the termite inspection (this costs about $45). By paying for these expenses yourself, or waive them altogether, you save the Seller a little bit of money, and this makes your offer a tiny bit stronger.
- Weaker Offer: Ask the Seller to pay for both the home warranty and termite inspection, and ask for more home warranty credit than what is considered usual for the area.
- Standard: Ask the Seller to pay for a reasonable home warranty plan and a termite inspection
- Stronger Offer: Pay for both the home warranty and termite inspection yourself, or eliminate them from the contract altogether. However, most loans require a termite inspection, so be sure to check with your lender first.
#10 – Taxes
In Maryland, the Buyer and Seller can negotiate on who will be responsible for paying the Recordation and Transfer Taxes, or they can split the amount evenly.
- Weaker Offer: Ask the Seller to pay for both the Recordation and Transfer Taxes.
- Standard: Split the taxes 50/50.
- Stronger Offer: Pay for both taxes yourself.
If you are in a multiple offers situation and want to win the contract, it is a good idea to know the different ways you can make your offer desirable than the rest. Your Realtor will be able to help you customize your offer based on the home condition, location, asking price, and the number of offers you’re competing against.