As a real estate broker, I have personal share the frustration of my buyers when their offers are not accepted. Recently in Spring 2021, I have placed nearly a dozen very competitive offers for a particular couple on single family homes in the $600,000 to $700,000 price range, only to be outbid by other buyers. Initially, my buyers looked at homes in the $500,000 to $600,000 price range, but the competition was even more fierce.
We have inquired as to the details on the offers which were being accepted, and found a few commonalities:
Buyers are removing inspection and/or appraisal contingencies.
This appears to be an effective strategy on getting your offer accepted, but it is not advised. In California, buyers have three primary contingencies, which in other words, are opportunities to cancel the purchase contract and receive your earnest money deposit (EMD) back.
The three primary contingencies are: 1) Inspection (physical, title, historical), 2) Appraisal (should the appraised value return below offering price, a buyer may renegotiate or cancel the contract), and 3) Loan (if the buyer is unable to get the loan they desire including rate and terms).
Reason: If the buyer removes the inspection contingency, and hires an inspector to perform a home inspection, the buyer then doesn’t have much ground to either 1) as the seller to make any repairs, and 2) cancel the contract if the inspection uncovers a costly repair such as plumbing, roofing, etc.
Buyers are offering appraisal shortage guarantees.
We are seeing offers being written with an appraisal shortage guarantee. In other words, if the appraised value of the home returns lower than the offering price, the buyer will pay the difference.
While this is very appealing to the seller, especially when the seller receives several offers over asking price, it may not be wise and prudent for the buyer.
Reason: We are currently in unprecedented times where there is a vast shortage of homes for sale and ample ready-and-willing buyers. This trend will not last forever. Remember 2005? When a buyer purchases a home well above appraised value, and later the market returns to normal, it will take several years for normal appreciation to catch up to the price the buyer “over paid” on the home.
Unless you are planning on living/owning the home for 10+ years, don’t overpay well beyond the appraised value.
Buyers are paying cash, or have large cash down payments.
Buyer appear from all parts of the world, and many have cash in tow. The misconception on behalf of most sellers is “Cash is King”. That may be true in a buyer’s market, or when there is ample inventory. Historically, when a buyer offers to pay in cash, the seller would be willing to accept a lower purchase price. The reasoning is that cash typically offsets some of the loan costs, collapse time frames, and closes escrow sooner.
However, we have seen all too many times where buyers come in with cash, and place an offer on Seller A’s place, as well as Seller B’s and Seller C’s. In other words, cash buyers are not always committed to a particular property. We have heard several stories where cash buyers back out of contract at the last minute because they were playing side-real estate games with other properties.
So, how do you get your offer accepted?
The million dollar question is how to get an offer accepted in the current Spring 2021 market in San Diego. After all, your clients are in the market to purchase a home, and agents want to sell their deal get accepted.
As many buyers are utilizing the services of a buyer’s agent, you may ask your agent to review the following tips:
- Make your offer stand out: Think outside the box. Inquire of the Listing Agent to their clients needs.
- Don’t place your client/buyer at risk: Make sure the buyer completely understands the ramifications of removing contingencies, placing an offer over market, and encourage them to look down the road a bit, rather than “today”. While you may make a friend today with getting a risky offer accepted, you will likely lose that friend when the market returns to normal and prices are not as competitive.
- Make it personal: While we preach that buying a home is a business decision, we can’t ignore the emotional aspect. We have seen countless deals accepted due to a buyer writing a short, yet personal letter to the seller.
- Learn the Seller’s motivation as to why they are selling: If the seller is currently looking for a replacement home, or moving out of state, they may need a couple weeks to remain in their current home to get their affairs in order. This is an opportunity for the buyer to offer the seller 2-4 weeks of free rent-back. This act alone may set your offer apart from the crowd.
- Inquire to the Listing Agent when the offers will be reviewed: Listing agents want to make sure they receive ample offers to present to their Sellers. Thus, it is to their advantage to inform buyer’s agents on when they will be reviewing offers. With that information, you can place your offer near the tail end, thus your offer will be the freshest in the Listing Agent’s minds.
- Inquire to the Listing Agent at what price will most likely receive a response: In this competitive market, receiving a counter offer seems like a “win”. Many buyer agents will place a blind offer without simply asking “what is my competition doing?”.
- Build a good rapport with the Listing Agent: Simple polite communication will go along way. Voice conversations are more personal and memorable. Complements are even more memorable. You want the Listing Agent to r-e-m-e-m-b-e-r you!
- Summarize your purchase offer in an email: Make it easy for a listing agent/seller to skim over your offer. This also gives you an opportunity to highlight the areas of your offer that separate it from the others.
- Highlight other successful transactions you had the in neighborhood of the subject property: Let the Listing Agent know of past successful deals you completed in the neighborhood. This will instill confidence that you are a team player and have experience in that market.
- Be a good sport: If your offer doesn’t get accepted, be a good sport about it. You never know if you will end up placing an offer with the same Listing Agent down the road.
As I wrap up this posting, I see that my words are directed to both buyers and their agents. The desperation and outcry buyers share is hear loud and clear. A hidden take-away is that if you can hold out on buying, it may be worth it in the long run. We anticipate as COVID wains and with vaccines being distributed, we will see more homes enter the market.
But if you can’t wait, and need a home today, consider the points in this posting. And of course, I and my agents here at HallDoran Realty are here to serve you!
Happy house hunting, and “may the odds be ever in your favor!”