What type of negotiator are you? Are you the type of person that just wants to offer what you think is fair for everyone, and move through the transaction as smoothly and efficiently as possible? Do you like to push the boundaries of what might be viewed as fair and reasonable, or is that stressful for you? Below I am going to outline different tactics, and terms that I consider when I help my buyers place an offer on a home.
These are some questions that I run through when I am helping my clients decide on the offer price-
“Should I offer list price, or over list? If over, how much?”
I tell my clients that this is a case by case scenario. Offering list price or below on a brand new listing in a competitive market is not typically a great idea– depending on what price they listed at compared to sold homes nearby. There are times after we do the research, that we conclude that they came on a little too strong (high). If this is the case, we can chat more about how to strategically offer less.
There may be times where we submit an original offer, and have a back up offer in mind just in case we get updated that another offer or multiple offers have come in. This is a good option if there is no offer review date (date set by the sellers to review any potential offers).
“What if I end up overpaying?…”
Sometimes when there are multiple offers, you might worry that if you win, you may have offered more than the home is worth.
Here are some things to consider-
When we determine the offer amount, I search for similar homes nearby, and see what they were listed for/sold for and pass this information onto you. This is what an appraiser will do when they go to the home to determine its value. We might offer more than what we think it will appraise for so that we can win it in a multiple offer situation…
Going from that, there are different types of value. How much buyers are willing to pay for the home, and how much a home is worth to an appraiser. Think of the values as emotional/buyer perception of value, which includes the cuteness factor, curb appeal, and overall vibe of the home. Then there is the scientific/equational value; size, bed/bath count, how it compares to homes with similar stats nearby. Sometimes you need to get under contract with the emotional value, and re-negotiate if the appraised value comes in lower.
How many days has the house been on the market? Is it a new listing? If it is a new listing, does it have an offer review date set by the seller(s)?
If it has an offer review date, this means that the agent plans to go through and present offers on a particular day in the future of the house coming on the market. For example, a home gets listed on a Thursday, with the seller and their agent planning to review any offers that come in the following Monday. This sets expectations for interested buyers, and allows the house to get full exposure- siting on market over the weekend and getting as many agents and qualified buyers through as possible before accepting any offer(s). If there is an offer review date, I will reach out to the listing agent to confirm that they intend to stick to that date. I will also look at how is it priced compared to recently sold homes nearby, and competing similar homes that are on the market.
If there is no offer review date and you want to entice the sellers to accept your offer right away, there is the option of offering a little over with other competitive terms, and having the offer expire that night with a note saying that your offer with those specific terms is only valid until that evening at a specific time. I help my buyers consider all of these options for each home of interest, and help them determine what is most savvy for that particular listing, while also keeping their comfort zone and specific goals in mind.
“If the home has been sitting for a while and I feel it’s overpriced, how do we know how much to offer?”
If a home has been sitting, I will search what similar homes nearby have sold for in the last 60-90 days. I will also reach out to the listing agent to find out how motivated the seller is.
“Should I include an escalation addendum, or an appraisal gap addendum in my offer?”
If we determine that there will be competition, and that there is an offer review date, we could include an escalation addendum in our offer. This is a good way to be competitive without offering the absolute max amount we predict it could go for, straight out the gate. It protects the buyer from stretching themselves unnecessarily. Some agents might come back later and say that they are not allowing escalations, and will call for “highest and best” offers before review. Most of the time escalations are allowed. *note that if there isn’t an offer review date, and no mention of other offers, you don’t want to include an escalation addendum- that may entice them to hold out for another offer to trip your escalation clause* For more information about these two addendums, check out my blog post, here.
“What happens if I make a strong offer and the inspection doesn’t go well?”
If you make a strong offer and after we inspect the home we realize there are a lot of repairs needed, most of the time you are in a better position to get more items taken care of by the sellers. If you had a much lower than list offer, or you got all of your closing costs covered, the seller might try and re-negotiate those terms depending on the expense and amount of repairs you ask for.
“Should I have an expiration date on my offer?”
The default is typically the next day at 9pm. However, if there is an offer review date and the listing agent says that they plan to stick to said date, It is professional to extend the expiration date to the review date. *If there is no review date, and you’re making a competitive offer for a home that has a lot of interest right away, it could be savvy to make your offer with its current terms, expire that same evening, or early the next day.
“Is there anything else I can do to get the seller(s) to accept my offer over someone else’s?”
See my blog post about crafting a winning offer, here!