In spite of rising interest rates, the demand from buyers for homes remains remarkably high. This is due to the current situation where there is a limited number of properties being listed for sale, while there is still an abundant supply of eager homebuyers searching for a home. As a result, houses that are priced competitively are being snapped up at a rapid pace, often resulting in multiple offer scenarios and bidding wars.
If you’re a buyer in this market, you may be wondering how you can make your offer stand out from the rest. Fortunately, there are several strategies and tactics that you can employ to craft a winning offer and emerge victorious in a possible bidding war.
Provide appraisal gap coverage
In order to get an offer accepted, you may have to bid over the asking price. But when offering above the asking price on a property, there is a chance that it may be more than what the bank appraises the home for.
Sellers are afraid of the appraisal coming in low when the house has escalated in price, so they like to see a guarantee of extra coverage.
Appraisal gap coverage is insurance to the seller that you are willing to pay an additional amount over the appraised value of the home, if the appraisal is less than the agreed upon purchase price.
If a seller is looking at two equal offers and one offer has appraisal gap coverage but the other offer doesn’t, they are going to go with the offer with appraisal gap coverage.
Increase your earnest money deposit
Earnest money deposits are used to show that you have skin in the game when making an offer to buy a property. The amount of money you put down as earnest money differs from market to market but is typically 1 to 2% of the purchase price. That 1 to 2% is not a hard and fast rule though. You can increase your earnest money deposit to more than 1 to 2%—maybe 3% or more—to show you really want a home. Offers with a larger earnest money deposit can lead to you getting your offer accepted over other offers.
Shorten your inspection period
The inspection period is when you get a licensed inspector to walk through the home and do an in-depth assessment on the structure and systems. If you offer a shorter window for inspection, such as a 3 to 5 day inspection period compared to a 10-day, a seller might accept your offer over others. They know that if something comes back bad from the inspection, they can go back to market sooner rather than later.
Cover your own closing costs
It’s crucial to carefully weigh the benefits and drawbacks of requesting that the seller cover your closing costs, especially in a competitive market. Ideally, it’s best to have enough resources to cover these costs yourself when making an offer, which can help you appear more financially stable and appealing to the seller. Of course, this may not always be feasible, but if you are able to find creative ways to save or borrow the necessary funds, it could ultimately increase your chances of securing your dream home
Include escalation clauses
The escalation clause can be a very powerful tool when making an offer on a property. Escalation clauses generally say that you will beat any other offer a seller has by $1,000 up to a certain purchase price.
Here’s an example of an offer with an escalation clause: $100K with an escalation up to $115K. If the seller has another offer of $110K, the escalation clause in your offer would be exercised and you would beat the other offer by $1,000, making your purchase price $111K.
In this scenario, you saved yourself $4,000 and got the house. In situations where there are maybe 2 to 5 total offers, escalation clauses are a great tool to use.
Provide a “Rent Back”
This is a pretty simple one: If a seller needs time after closing on the house to pack their things and move or buy another house, give it to them! Many times, a seller may ask for 10 days or as many as 60-plus days to get their ducks in a row and move out of a property. If you give the sellers the occupancy they need after closing and another buyer doesn’t provide occupancy, your offer is more likely to get accepted.
Plus, in many cases—depending on the length of occupancy the seller needs—you may even collect rent from sellers or collect a fee for days they stay in the home past the agreed upon occupancy period. Boom!
We sincerely hope that you found these tips to be informative, and that you were able to gather some valuable insights and techniques that you can use to enhance your future offers. We understand that the process of writing a compelling offer can be both challenging and overwhelming, but with the right strategies and tools at your disposal, you can significantly increase your chances of success!
So, as you embark on your real estate hunting journey, we wish you the best of luck and remind you to stay focused, persistent, and positive. With the right mindset and approach, you can achieve your goals and secure the home of your dreams.
