True Confessions of a Listing Agent - Why We Didn’t Accept Your Offer
The concept of buying a home seems so easy. You have a good job and steady income, a down payment and have been pre approved for a loan, unless you’re lucky enough to be able to pay cash for a home.
Now you’re ready, with your Realtor, and you finally find a home for sale that fits your criteria and it’s in your price range. You know the market is competitive so you submit your offer at full asking price hoping the seller will accept it so you and your family have a place to call home in 30 days. Then your Realtor calls you and tells you the sellers picked another buyers offer.
This scenario describes the current real estate market in many cities and in many states. For every buyer that gets their offer accepted there could be 6 to 20 other buyers whose offers were rejected and in many cases this scenario plays out with buyers over and over again like the vicious circle that we have come to know that ends with “Buyer Burnout.”
I’ve seen firsthand how stressful it is for buyers to go through the entire process over and over again submitting countless offers and eventually settling for a home that didn’t fit their criteria of “must haves” and in many cases they spend more than they initially planned.
While it seems like there is absolutely no hope to ever get an offer accepted in a full seller’s market, I’m here to tell you there are a few key changes you can do to increase the chances of getting your offer accepted.
As primarily a listing agent here’s how I quickly narrow down the offers I receive on a home. In this scenario we’ll say the home is listed at 550K and we have received 10 offers.
The Price:
If it’s a hot real estate market and sellers are getting multiple offers, it’s typically a good idea to make sure your Realtor has given you the current comparable market value for the home you’re going to write an offer on. You don’t want the value from 6 months ago and in some cases you don’t want them from t 3 months ago. If the comparable sales show the listing price is a little low then at least make your offer at market price, if not more. If the comps show the sales price is right on the money, then offer more. If the price is higher than current sales comps then you decide what your limit is going to be. Remember, getting a good deal in a hot seller’s market means you got your offer accepted. It is absolutely ridiculous to write or keep writing offers that will never get accepted and it just wastes everyone’s time.
Example of how we narrow down 10 offers to 3. Price, terms and quality of loan approval letter, type of loan. If you’re getting a 3 ½% FHA loan then you’re going to have to make your offer better than someone who is getting a 20% conventional loan. If you’re getting a 20% conventional loan you’re going to need to make your offer look better than a 50% down loan or cash offer.
If your answer is, I can’t go any higher then you need to start shopping for a less expensive home or get used to getting your offers rejected.
Rule #1 - A home’s list price means absolutely nothing, which is why your Realtor is going to have to tell you what the real value is. In many cities like Boise ID, they list homes below the market rate to attract more offers. Let’s say the homes are coming on the market at 10K to 20K below their market value. If your offer comes in at list price or even 5K above list, you’re still out of the game because everyone knows what the homes are really selling for except of course you and your Realtor.
Know what the real value is before you make the offer and base it on the.
Rejection Reason # 1 – Making an offer on a home that isn’t close in price to what others are offering
The Pre Approval Letter
Not all lender Pre Approvals are the same. There are 2 schools of thought in the real estate community with regards to what your letter says. If you are Pre Approved for a loan up to a max of $600,000 then make sure your letter clearly states the max amount you can qualify. Many Realtors will ask you or your lender to reduce the amount written on the pre-approval your offer is less.
Here’s an example: You qualify for a 600K loan but the home you’re putting an offer in on is 550K. The Realtor says “let’s not let the sellers know you can go up to 600K or they will want you to pay more money for their home so ask your lender change the Pre Approval amount for 550K so it matches our offer”
This is a common Realtor rookie mistake that even seasoned Realtors make. So what if the seller sees that you’re qualified for 50K more than what your offer is. Will they ask for more money, maybe but do they also believe you are a solid buyer at 550K offer price and not maxed out, absolutely! Does your offer look better than another offer exactly like yours but with the Pre Approval letter looking like they are maxed at their limit at 550K. Double Yes.
To the listing agent aka the seller’s agent, Pre-Approval letters are one of the most critical pieces of information in deciding which offer is even a viable consideration. I have seen poorly written preapproval letters get entire stacks of offer thrown out and the buyers never knew it.
So what does a Pre Approval letter need to have in it? First off, as we discussed the maximum loan amount looks good, especially if it’s higher than the homes you’re submitting offers on. Second, it helps you and the seller if your loan file has gone through and passed an underwriter review and states that on the approval letter. What does underwriter review mean to the listing agent, it means someone at in the loan process who is instrumental in getting your loan approved has already taken a look at all the documents you provided along with your credit report and says “I don’t see any problems at this point.” Does that mean there won’t be issues along the way, absolutely not, however it does tell the listing agent and the sellers that your Pre Approval is not just the run of the mill lender letter but rather an actual file reviewed approval letter.
The listing agent does not want the offer they recommend to the seller to fall out of escrow. Not only does it make them look bad to the sellers but their listing contract term could be coming to an end and they want to make sure the deal is going to go through before it expires just in case the seller isn’t going to sign another listing contract with them.
Most escrows fall out because the buyer ends up not qualifying for the loan or the buyer needed to bring in more money if it didn’t appraise.
If your pre-approval doesn’t have the strength to show you are well qualified then you’re finished before you ever started.
Rule #2 – Make sure the preapproval letter that you are submitting with your offer shows the maximum you can qualify for and states it has been through a preliminary underwriter approval. If your lender can do it then get a new lender who can.
Include your Proof of Funds i.e. a statement of where your funds are coming from to buy the home. If you’re putting 5%, 10% or whatever % down then you’d better include the Proof of funds with your offer so there’s no question you have the money and do the math to make sure the numbers are accurate. If your offer shows you’ll need $50,000 to complete the transaction then you’d better make sure that’s at least the amount you present.
Rejection Reason # 2 – Weak pre-approval letter and proof of funds don’t add to the actual offer amount.
Deposit Amount
When you submit your offer there is a section on the offer that identifies how much you are going to put down as a good faith. This is called Earnest Money Deposit. There are many general rules to how much is enough. Some agents say 1% other say 3%. Besides price the good faith deposit is an attention grabber or not.
Let’s say your competition is putting down 3% on a 550K purchase price, which comes out to $16,500 of deposit money. If your offer has $25,000 as your deposit I guarantee the listing agent is going to take a second look at your offer. Naturally if the price is low it doesn’t matter but if you’re in a competitive situation it just might tip the scales in your favor. (Note: every state is a little different about the rules for deposits so talk this over with your Realtor).
Rule #3. The deposit is an indication of your commitment to your offer. If it’s the same amount of less than everyone else’s then your commitment level isn’t going to stand out.
Rejection Reason # 3 – Your offer may not be rejected solely on your weak deposit amount but it sure isn’t going to make your offer shine over the rest of your competition. The Terms of Your Offer
Put yourself in the role of the seller. What does the seller want? Do they want the highest price, do they want a long escrow because they aren’t moving for 2 months, do they need a rent back? I always say Never, Never, Never submit an offer without first understanding what the seller’s motivation is.
Here’s an example – Lets say the seller is motivated by staying in the home for 2 months because their next home isn’t ready yet. With the help of your agent you write a full price offer with a 25 day escrow or title close date thinking that every seller wants a quicker sale. Guess what, you just shot yourself in the foot because your agent didn’t find out what the seller wanted and another seasoned agent did and submitted an offer that works best for the seller.
In a hot sellers market just know the sellers will be receiving offers where the buyers aren’t asking for a $560 home warranty, they aren’t asking for the seller to provide $100 termite report, they aren’t asking for help with closing costs, they aren’t asking for rent from the seller if the seller stays in the property an additional 15 to 30 days.
Your competition is out there writing what we call in the real estate world as a “Clean Offers.” What’s a clean offer? It’s an offer that isn’t asking the seller to pay additional costs. Remember, if you want the home they are selling and there’s a number of other buyers sending in offers, your goal is to make it easy for the sellers to see you’re not there to nickel and dime them to death and you’re willing to give them an attractive offer.
Rule #4 – It’s all about the seller at this point. How can you, without being there in person, convince the seller you really want the home and aren’t going to be petty about every detail?
Rejection Reason # 4 – You feel like you’re giving the seller everything and so you through in a few more benefits for yourself at the sellers expense, like a home warranty. Which would you rather have, no home and no need for a home warranty or a home that you’ll need to spend a few hundred dollars to buy yourself. In a seller’s market qualified buyers are a dime a dozen.
Contingency Periods
Contingencies are periods of time in which the buyer has the opportunity to perform their due diligence such as inspections and document reviews or waiting periods such as loan approvals.
Through the eyes of the seller - They see contingency periods as opportunities for the buyer to back out without losing their deposit money. The shorter the contingency periods the better sellers like the offer, which is totally contrary to what the buyers want to do but remember, you’re trying to get your offer accepted so it’s not all about you.
Rule #5 – Shortening or eliminating contingency periods can make your offer look a lot better depending on what your do. Instead of a 10 day inspection period shorten it to 7 days and just move faster to get the inspections done.
If you’re offering over the current market value, which means your offer is over what it’s going to actually appraise for then remove the appraisal contingency if you have the funds to cover the difference. If you offer over market value for the home and don’t modify the appraisal then you are basically saying “I need this home to appraise for what I offered or I can’t buy it.” Maybe that’s the case and you can’t cover the difference between appraisal and offered price but at least shorten the inspection contingency to set yourself aside from your competition.
Rejection Reason # 5 – Your competition is removing or modifying the contingency periods and you aren’t. Remember, shorter contingencies are just as important to the seller as the standard timelines are to the buyers. The whole game is to show the seller you are serious and pulling out all the stops to buy the home.
Here’s a quick summary of what you can do to start making your offers get noticed.
#1. Only work with a seasoned Realtor who has been in the business full time for at least 15 years in the areas you’re writing your offers in. I say 15 years because they should have plenty of connections and have built relationships with other agents and at times can get inside information on the competition’s offers that you wouldn’t otherwise have know.
#2. Price - Price – Price. If you want your offer to get accepted in a seller’s market you’re going to need to step up to the plate and put in your best offer the first time. Never assume you’ll be playing the game where you’re expecting the sellers to send you a counter offer. Submit your highest and best offer the first time. If your offer doesn’t get accepted then you can at least say you gave it your very best.
If your offering your maximum price and keep getting beat out by offers with prices 7K to 20K above then it's time to start looking at lower priced homes.
Just a side note, I hear buyer say “I guess it wasn’t meant to be!” That could be true if your offer was highly competitive but if you sent them a standard offer then none of your offers will ever be “meant to be.”
#3. You need to know what the seller’s motivation is. Sure it’s probably going to be how much they net after the sale. It might also be they want a longer escrow, a rent back or maybe they just want a place to keep their car parked for a couple of months and they want part of the garage. You need to have this information so you can move the seller to seriously consider your offer.
#4. Going in strong with an offer means you have to convince the listing agent and the seller that you’re loan is rock solid and you will be able to get financing and close the sale on time. You can’t do that with a weak pre-approval letter or a pre approval letter that is leaving out the important parts.
#5. Proof of funds – This needs to go with the offer and the Pre-Approval letter. I can’t tell you how many time agents say “The buyers will get the proof of funds over to you when they get their offer accepted. For me that an instant Rejection. Why would my sellers accept an offer without one of the most important bits of information… The down payment!
#6. Make the deposit amount something the sellers will remember. Since every state is different you’ll need to consult with your Realtor on insuring you keep the money safe. An experienced Realtor isn’t going to let your deposit go without a fight.
#7. Find out what the sellers want and make sure your terms help them accomplish their goals. Your goal is to get the home, their goal is to get what they want. Find out where you can compromise and give the sellers a few wins, which should lead to getting your offer accepted.
#8. If you can remove or shorten certain contingency periods to make your offer look more attractive, then do it.
#9. While it doesn’t always work, many buyers right bios of themselves that tell their story to the seller. The majority of the bios I’ve seen say something like “My husband and I have 2 kids and we are really excited to be living in this neighborhood since it’s walking distance to the high school.”
10. Don’t lose sight of the goal, which is to get your offer accepted. A Win-Win in a seller’s market is you getting your offer accepted. It’s not buying the home below market value or trying to make the seller fix everything in the home before you move in. You decide what the home is worth to you and make it easy for the seller to choose your offer.
You may want talk to your Realtor about the benefits of using hard money and bridge loans as a way to increase your competitiveness. Even though seller's markets don't last forever, that doesn't mean much when you're in need of a home and can't wait until the market shifts back to a buyer's market.
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