You have found a home you want to buy. Now it’s time to submit an offer to the seller. What you put in — or don’t put in — your offer can determine whether the seller accepts or rejects it. Many buyers assume price is all that matters. But other parts of the offer can go a long way toward getting you into that home.
“One of the things first-time buyers have to deal with a lot is . . . they are in a price range that a lot of other people are in,” said Christine Richardson of Weichert Realtors. “Chances are pretty good that you’re going to end up being in competition [with other buyers]. So it’s important to make your offer as strong as you can possibly make it in order to increase the chances that yours gets selected.”
You need to know what matters to the sellers. This is where a good real estate agent can make a difference.
“It’s totally worth the extra time up front to choose a good Realtor,” Richardson said. “Your satisfaction, your ultimate success is greatly enhanced by having a terrific realty partner on your team. I think a lot of first-time buyers don’t get that.”
Your real estate agent should be in touch with the listing agent to find out as much as he or she can about what the sellers are seeking.
“Even before the offer goes in, it’s about reaching out to the listing agent and saying, ‘Okay, we’re preparing an offer, but what’s important to you guys?’ ” said Derrick Swaak of TTR Sotheby’s International Realty.
Perhaps the sellers want to stay in the home until they close on their next house. This is known as a rent-back. Richardson recommends her buyers make the rent-back free. It probably won’t cost the buyers anything because their first mortgage payment usually isn’t due for a month or two after closing. It’s an easy way to make your offer more attractive.
Swaak and Richardson recommend having as few contingencies as possible. Still, you need to be smart.
Waiving a home inspection contingency is not a good idea. But in highly competitive situations, you can have the home inspected, with the seller’s permission, before you submit your offer. Or you can opt for an as-is home inspection.
With an as-is home inspection, the buyer has the home inspected after the offer has been accepted but agrees not to back out unless major problems are found. An as-is home inspection gives both sides peace of mind.
“If a buyer has to do a higher price because there were three other offers, the seller feels like the buyer is going to try to get that money back by giving him a laundry list of items on the home inspection,” Richardson said.
An attorney review is another stumbling block that can cause an offer to be rejected.
“Sometimes we’ll see a buyer, especially first-time buyers, they read the books about how to buy a house,” Richardson said. “One of the things the books will tell you to do is get an attorney review. There’s nothing a seller wants less than an attorney review.”
“I’m never going to tell someone not to have an attorney,” Swaak said. “But most offers are written on general forms. As long as you are not venturing outside the general form that’s been created by the Realtor association, I think you’re fine.”
“If you want to have [an attorney] look at a contract, have them look at it while we’re viewing houses,” Richardson said. “It’s going to be the same contract.”
Make sure you put down a strong earnest money deposit as part of your offer.
“You don’t want to come in with a low earnest money deposit,” Swaak said. “Earnest money deposit makes a huge difference other than price.”
Swaak said earnest money deposits tend to vary by jurisdiction. The typical range for the District and Maryland is 3 percent to 5 percent of the purchase price. In Virginia, it is more like 1 percent to 2 percent.
“[There are] so many ways that the buyer can get that deposit back you’re really not putting a lot at risk,” Richardson said.
Having a strong preapproval letter from your lender is also important.
“We always look at who the lender is and how strong the [preapproval] letter is,” Richardson said. “The lender has a huge impact on how smooth this transaction is going to go and whether we’re likely to hit the [closing] date. If it’s a lender I’ve never heard of or, worse yet, a lender I’ve had a bad experience with, I’m going to tell my sellers that.”
A popular feature of offers in competitive markets is an escalation clause.
“I’m not sure I’m a 100 percent fan of the escalation addendum,” Swaak said. “You’ve tipped your hand. You just showed them what you’re willing to pay. But in other circumstances, it works.”
Swaak pointed out that sellers can shop offers around. Unless a nondisclosure agreement has been signed, nothing in your offer is confidential.
“You just need to be aware of that when you are submitting an offer,” Swaak said.
Richardson likes to have her buyers write a personal letter to the seller. She suggests they tell the seller what they like about the home and how they anticipate using it. For example, “I love that master bathroom renovation you did. What a great idea a heated floor is. I’m so looking forward to that next winter.” Don’t lay it on too thick, and don’t point out things you don’t like.
Swaak has mixed feelings about personal letters.
“Sometimes people think this is a good thing,” he said. “Sometimes brokers like myself think this can be a dangerous road to go down . . . You have to be very cognizant of fair housing [laws] and what you put in that letter. You have to use your situational best judgment about whether you include a letter and whether that’s going to work toward or against you.”