Strategies for Making a Winning Offer

Offer Asking Price (at least)

Perhaps the most straightforward strategy for increasing the strength of any offer to buy a home is to use the seller’s asking price as your starting point.

In fact, in a competitive situation where there are multiple offers coming in, especially in a short period of time, the sellers likely will expect it.

Part of this strategy is to put your best foot forward from the very beginning. After all, you want to make your offer as attractive as possible. If you’re one of many competing buyers for a hot property, there may not be any other choice but to offer a price at or above asking.

But financed buyers should keep in mind that the home may not appraise for the amount of your offer. If this happens, you’ll have come up with the difference in cash (sellers know this, too).

Continue reading below to learn about another strategy known as “gap coverage” that addresses this particular situation.

Make an All-Cash Offer

All else being equal, an all-cash offer will always win over an offer paid with financing.

When a seller receives an offer from a cash buyer, they immediately understand there’s less risk and closing won’t take too long.

But cash buyers must be able to provide proof of funds (POF) documentation that shows the cash exists, it’s liquid and readily available. You can provide POF with your purchase offer with by including a recent bank account statement or verification letter from your financial institution wherever the money resides.

Appraisal Gap Coverage

One of the fears seller’s have when considering offers from financed buyers is the possibility of a low appraisal. This is because when there’s a difference between your lender’s appraisal and your offer price, it creates a “gap” in funding. When this happens, the gap either needs to be filled or the deal could fall through.

A great way to reassure a seller is to offer a guarantee known as appraisal gap coverage (or appraisal guarantee). Gap coverage is a clause added to your purchase agreement that guarantees you can, and will, pay the difference in cash, usually up to a certain amount.

Another option is to waive the appraisal altogether as part of your financing provision. The net effect is essentially the same as the guarantee, that is, you must have the funds available to pay any shortfall between the appraised value and your offer price.

But similar to an all-cash offer, offering gap coverage means you’ll need to demonstrate that you have enough liquid funds available to cover the funding gap.

Pay All Title Fees

In general, certain transactional, attorney, and settlement fees charged by the title company typically are split between the buyer and seller.

But when you’re a buyer trying everything to strengthen your offer, you can stipulate that you’ll pay all of the title company costs.

While not the most compelling incentive, money does talk and sellers will appreciate that you’re willing to pickup that part of the tab. It’s a relatively small gesture, but a little could go a long way, especially when combined with one or more other strategies.

Pay Transfer Taxes

Then there’s transfer taxes. Here in Emmet County, Michigan, transfer taxes amount to $4.30 per $500.00 of the gross sale price (or 0.86%).

In normal circumstances, this tax is paid by the seller. But again, you can stipulate in the purchase agreement that you, the buyer, will pay these taxes.

The cost to you will be substantially higher than the title fees mentioned above, but including this provision keeps the seller’s settlement statement clean and surely will get their attention.

Pay Broker/Agent Commissions

If you really want to win a competitive bidding war in real estate, one of the strongest strategies available to buyers is to pay the broker commissions.

In a typical transaction, the seller is the party who pays the commission fees to the brokers and agents involved in the deal. Depending on the sale amount and the seller’s agency agreement, commissions easily can make up the highest cost to the seller.

When you’ve found a home or property that you simply can’t live without, using this incentive can make the seller’s decision of which offer to choose an easy one. But you should keep in mind that your costs can go up by 6%-7%.

Generous Occupancy Terms

As a buyer, you may be anxious to begin using your new home as soon as the deal closes. But many sellers need time to pack up, move out, and potentially find a new home. So to sweeten the deal, you might consider offering the seller lenient occupancy terms.

Known as a seller leaseback or sale rent-back agreement, permitting the sellers to remain in the home for a short period of time is a common part of many residential real estate transactions.

To make a leaseback even more appealing, you might allow the sellers to remain in the home at a discounted rate (or even “rent free”) and/or for an extended period of time after closing.

Just remember that as the new owner you are responsible for the property, including its insurance, maintenance and repairs. But in a leaseback situation, the sellers still maintain possession of your new home. They become your tenants and you their landlord, for better or worse.

Preapproval Letter

If you’re buying with financing, a recent preapproval letter from a lender is almost always a prerequisite. Some agents might not even work with buyers who don’t have a preapproval letter already in-hand.

Remember, a preapproval is not the same as prequalification, the latter of which won’t normally satisfy the seller’s need to know about your ability to pay for the purchase.

Escalation Clause

A great way to guard against getting outbid while also ensuring you don’t overpay unnecessarily is to use an escalation clause as part of your offer.

In general, an escalation clause details how you’re willing to increase your offer in specific increments over competing offers. In a competitive bidding situation, your offer will automatically escalate by a certain amount over and above higher offers, but only up to a certain threshold.

As an example, let’s say your initial offer is $500,000, but you’re willing to pay up to $550,000 for the property. When writing your offer, you include an escalation clause that automatically increases your initial offer by $2,500 over higher competing bids. So if two other offers come in at $525,000 and $535,000, you’re offer will automatically escalate to $537,500 which is $2,500 above the higher other offer.

Before considering an escalation, you should be certain that your agent is capable enough to craft a proper escalation provision that protects your interests. If not, be sure to have your real estate attorney review or draft this provision.

Higher Than Normal Deposit Amount

As part of your offer to buy a home, you’ll include a cash deposit whose purpose is to demonstrate that you’re a serious buyer. Known as an earnest money deposit (or EMD), the typical amount hovers between 1%-2% of the offer price.

Since the EMD is normally refundable to the buyer, it is mostly symbolic in nature. But if you have the cash on hand and don’t mind it being tied up for 30-60 days +/-, increasing the amount could signal to the seller of your level of commitment, and that you have the resources necessary to get the deal done.

Hard Deposit (Non-Refundable)

Earnest money deposits are usually refundable to a buyer provided that certain conditions in the purchase agreement fall through. Some common situations include a failed inspection or the inability to obtain financing.

While risky, in a competitive market like we have in Harbor Springs, “going hard” with your deposit might put you over the top against competing offers.

If you’re very confident in your ability to close the sale, and you’re not afraid of losing your deposit money, this could be a great way to get the seller’s attention.

Limiting or Waiving Inspections

Another strategy to strengthen your offer is to limit your inspections or even waive them altogether. This type of strategy is often used with condominiums since much of the responsibility for repairs lies with the association.

While both introduce risk to buyers, offering a limited and quick inspection can be very attractive to sellers. Some examples might include limiting your inspection to just major mechanical items, assuming the cost of repairs up to a certain threshold, or just looking for any environmental concerns.

Not for the faint of heart, limiting or waiving home inspections exposes buyers to possibly considerable (and unnecessary) risks. Unless you’re an exceptionally experienced real estate buyer, or you’re capable of taking on potentially expensive and complex repairs, waiving inspections should be avoided.

Local Mortgage Lender or Bank

Rightly or wrongly, some local sellers and agents might have a negative view of out-of-area or national lenders. Reasons for this attitude could include valid past experiences, or simply a general misunderstanding of how mortgage lending works.

Whatever the reason, it’s important to remember that you ultimately want the seller to have a positive perception of your offer. It then might help your offer’s chances by providing a preapproval letter from a lender or bank that is local to the Harbor Springs and Petoskey areas.

Keep in mind that a preapproval letter doesn’t preclude you from using any other lender of your choosing. Instead, it simply shows the seller that you are pre-approved from a local lender.

This strategy is designed simply to improve the seller’s perception of your offer when you’re using financing. If they have more confidence in local financial institutions, it can’t hurt to try this harmless strategy.

Write a Letter to the Seller

A letter to the seller can often be viewed as a way to humanize your offer. In such letters, you’ll introduce yourself, explain your passion for the seller’s home, or share why owning a home up north has been a lifelong dream.

Another strategy might be to explain your employment stability and credit worthiness if you’re paying with financing.

But you should keep in mind that a letter to the seller could inadvertently disclose information about your personal situation that you might otherwise not share with strangers.

You’ll also want to be very careful on how it’s written, the words used, and what tone in conveys. The best advice in most situations is to keep a letter to the seller short, polite and to the point, because you just never know how it might be interpreted.