How to Make a Competitive Offer on a Home

If you are trying to buy a home in a seller’s market, you have a lot of competition. What sets you apart from the other bidders is what is going to get your bid noticed. If you just bid an amount and don’t give any other factors consideration, chances are that your bid may get overlooked.

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Do you want to stand out from the competition? Keep reading the top five ways to make that happen.

Keep Your Contingencies to a Minimum

It’s common to add contingencies to your purchase contract and sellers even expect a few of them, but if you overdo it, they may not take your offer.

The two most common contingencies are the financing and appraisal contingency. If you have a way to get rid of either one of them, you have a good chance of the seller accepting your offer. The financing contingency gives you the chance to back out of a contract if your financing doesn’t get approved. This is a big gamble for sellers. They really want buyers that either have their financing in order or that have enough cash to buy the home outright. If you are reliant on your financing and don’t have it secured, you may not win the bidding war.

The appraisal contingency gives you a way out of the contract if the home doesn’t appraise for what you bid on it. Again, this is a gamble for sellers. Hopefully they’ve done their homework and priced the home appropriately. If they didn’t and you don’t have an appraisal contingency on it, you might be on the hook for the difference between the appraised value and the purchase price. If you have enough cash to make this possible, it could set you apart from the other bidders. Only remove this contingency if you are comfortable doing so, though.

Make a Large Down Payment

Money talks, even when it’s not about the actual purchase price of the home. If you have a large amount of money to put down on a home, it shows your seriousness in buying it. It also shows sellers that you are a good risk for lenders. With a large down payment, your chances of being denied financing are much slimmer than if you were to borrow say 95% of the home’s purchase price.

In addition to the down payment, you could offer a large earnest money payment. This is money that you put down in good faith. Neither you or the seller holds onto the money, though. Instead, a third-party escrow company holds onto it. If you violate the purchase contract, the seller may have the right to take the money and keep the home. If you do everything as you said you would in the contract, though, the earnest money goes towards your down payment at the closing.

Allow the Escalator Clause

If you know you are in the midst of a seller’s market, including an escalator clause in your bid can help your case. This clause lets the seller know that you are willing to increase your bid if your original bid is outbid. This shows the seller that you really do want the home and will do what it takes to get it.

While the escalator clause on its own won’t give you the leg up on the competition, if you combine it with fewer contingencies and a large down payment, you could be a good contender. Sellers want the buyer that is serious about buying the home and that asks for the fewest amount of ‘protections’ to get out of the contract.

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Know the Seller’s Needs

If you have the chance, get to know the seller. This way you will find out what they need. For example, some sellers are in a hurry and need to be out of the home in 45 days. Other sellers have all of the time in the world. If you know a seller is in a rush, though, you can offer to close on the home in the time that they need. This is only possible if you have all of your ‘ducks in a row,’ though. If you can pull it off, a seller may be willing to take your bid, even if it’s lower, just because you are able to get in the home faster.

Sometimes sellers need other things like:

  • Time to rent the home back from you until their home is ready
  • The ability to take the appliances with them
  • Help with the closing costs and/or realtor fees

Knowing what the seller needs and what might sway them in your direction can help you be the winning bidder in a tough market.

Offer the Full Price

If you are willing to pay full price for the home and you know that it’s worth at least as much as the seller is asking, go for it. This eliminates a lot of the back and forth negotiating, which can increase your chances of winning the bid. If a seller sees that you are willing to pay what they are asking for the home, they will know that you want the home and don’t want to mess around.

Of course, if you combine that offer with a low amount of contingencies and give the seller the terms they need, you put yourself in an even better situation. Sometimes money talks and other times, sellers need other things than money, such as time.

It’s a delicate balance when you are trying to buy a home in a seller’s market. Be aware of the state of the market, what your bidders are doing, and what sellers need. Ask a lot of questions and use a licensed real estate agent for your best chances at winning the bid.

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JMcHood

Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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