How to make the best offer on a house in 2023
How to make the best offer on a house in 2023
The housing market has completely shifted since the beginning of last year. So it makes sense that buyers will need to structure their offers differently now than they did a year ago. In fact, there is one big thing sellers are looking more at this year that wasn’t as important to them last year, and that is certainly of the sale.
A year ago, if escrow got cancelled for any reason, sellers really didn’t have to worry because home values were continuing to rise and they more than likely had a handful of eager buyers submitting offers again less than 24 hours after it went back on the market, often for a higher price.
This year however, escrows have been cancelled left and right due to buyers regaining more control over the transaction as demand faded. Because of this, sellers have been forced to re-list their homes on the market after escrow is cancelled, which leads to a new round of keeping the house clean and organized for weeks as buyers attend open housing and showings in hopes that another qualified buyer comes in to place an offer. Also, right now in a depreciating market, the longer it takes for sellers to sell their home, the more the home is going down in value and the lower their offer prices are getting as each week goes on.
So at the beginning of last year, sellers were more focused on who is going to give them the top dollar for their home, this year, it’s all about who is going to give me the best chance of closing escrow on my home. So based on this info how do you write the best offer on a house in today’s market? Let’s take a look at the top 5 things you need to pay attention to:
#1 Type of pre-approval you get
First are foremost, if you’re planning to buy a home, you need to first speak to a lender to get your pre-approval. Sellers, even in today’s market, are not going to take your offer seriously without one. However, not all pre-approvals are created equal. Let me explain, when you go to write and offer on a home there is section of the purchase contract that asks if your lender has issued you a pre-approval or a fully underwritten pre-approval.
This might not seem like a big difference but it’s huge because having a pre-approval just means that you met the lenders basic guidelines to get a loan after sending over some financial information. A fully underwritten pre-approval on the other hand, means that the lender took all of that financial information and sent it to their underwriting department to basically almost fully guarantee that they can do the loan.
If an issue pops up during that underwriting process they can address it then before you even start placing offers on homes so when you do get into escrow, you and the seller can be fully confident that they loan will go through. So when a seller is looking for certainty from a buyer, this is about as good as you can get without coming in with all cash. So the take away here is when you talk to the lender that will be doing your home loan. MAKE SURE THEY CAN DO A FULLY UNDERWRITTEN PRE-APPROVAL.
#2 Your agent needs to call the listing agent
Always have your agent speak directly to the listing agent to get as much information as possible as to what the seller is looking for in an offer. It still amazes me that even today, when I get offers on homes I’m helping clients sell, only about 25% of agents call me asking me what’s important to the seller in an offer. They send the offers in blindly, not knowing if the offer is actually what the seller is looking for.
Yes, price is important in an offer but there are another 10-20 items inside a purchase contract that are often very important to a seller as well. If your agent isn’t calling to find this out, they are not only doing the buyer a disservice, but they aren’t capitalizing on the opportunity to start a professional relationship with the listing agent. I can’t tell you how many times the listing agent has called me and said these words, “We had offers at higher prices than your buyers, however based on our conversations leading up to you placing an offer and how you structured the offer, my seller is choosing your buyer’s offer to accept.”
Here is a quick common example on how this can play out.
Let’s say a seller is also trying to purchase a new home with the proceeds of the sale of their current home. In this case, logistically what has to happen is the seller needs to close escrow on their current home, then get those funds transferred over to the other escrow of their new home, then close that escrow before they can take over ownership and move in. All of this can take anywhere from 2-5 days to happen.
The problem? The seller basically has no place to live in-between when their current home closes escrow and when their new home closes escrow. So what typically happens is the seller asks the buyer of their current home if it would be ok for them to remain in possession of their home until a day or two after their new home’s escrow closes so they have time to pack and take all of their belongings from one house to another without having to worry about finding a place to live and store there possessions for a few days. If your agent didn’t call the selling agent ahead of time to get this information, your offer is already put at a disadvantage compared to others who took the time to call.
Yes, the seller can then issue you a counter offer asking for these things but the damage is often already done, your offer already looks less professional and makes your agent look like they don’t know what they are doing which is not a good way to inspire certainty in your offer, which again is what sellers are really looking for right now.
#3 Offer price
Yes price is still going to be important to sellers. If you are hoping to throw out low ball offers way below that market value of the home, although it’s possible to find the right seller who is in a hurry to sell and will take a much lower price, those are going to be very hard to find. In today’s market, the more realistic goal is to review comparable sales over the last 90 days in the neighborhood with your agent and ultimately determine what fair market value is. Once you have this value, depending on the circumstances (how long it’s been on the market, how many other offers the seller has, etc) you may be able to offer slightly below that last comparable sale on the home but if you go too low be prepared for the seller to just laugh at the offer. Yes, we are seeing depreciation happen in the market but we are talking about maybe a percent a month right now. So you need to look at current pricing trends in the neighborhood and place an offer within those trends to have the seller look at it seriously.
Contingencies in a contract are there to help protect the buyer during escrow so if they find something wrong with the property, the home doesn’t appraise, the loan can’t be secure, etc, they have a way to back out of escrow and in most cases get their full deposit back. Once all contingencies have been removed in a transaction the buyer will typically be locked into purchasing the home. So when we go back to what sellers are looking for right now, certainty, it makes sense that the shorter these contingencies are, the better it will look to the seller as you will get locked into buying the home faster. But buyers don’t worry, gone are the days of you having to removal all contingencies and protections just to have a shot at getting your offer accepted. However, if you can reduce the number of days you allow for contingencies while still keeping yourself protected, it will still greatly improve your odds that the seller will accept your offer.
For example, in the California purchase contract, the standard amount of days for an inspection contingency is 17 days. So this gives you a little over two weeks to get a general inspection done as well as any other inspections(roofers, plumbers, electricians, etc) on the home before you have to decide if you still want the house or if you want to request the seller fix some of the issues you find during the inspections in order to agree to move forward.
In today’s slower housing market, many home inspectors are only booked a few days out(with the exception of roofers right now due to all the rain we have been getting). So often times you can get the inspection done on day 2 or 3 and even if you want another secondary inspection like a plumber, typical that will only take another few days to get done. So do you really need the full 17 days for the home inspection contingency or could you comfortably move it to 12-14 days? That will be on a case-by-case bases on every home, but it’s a conversation you should be having with your agent to go over before placing each offer.
#5 Have your lender reach out to the listing agent
This is something that SHOULD be done by every buyer every time you place an offer. If you’re getting a loan for the property, make sure you let your agent know you would like your lender to call the listing agent to review how solid your loan is and answer any questions they might have. Right now due to the crazy fluctuations in interest rates, listing agents and seller are both nervous about buyers with loans, so having the listing agent get that direct contact with the lender is invaluable, especially when most buyers aren’t doing it. I would say that only about 10% of the lenders end up reaching out to me when I’m listing a home and having that conversation just helps be confirm that the pre-approval is legitimate and that the lender doesn’t foresee the buyer having any issues getting the loan to the finish line on time. It also give me the opportunity to get to know the lender a little as well and start developing that professional relationship with them before we even get into escrow because communication is key to a smooth escrow. When all parties are on the same page going into it, you’re likely to have a better escrow with less issues, and when issues do come up, that communication is also key in helping get it resolved to make sure the buyer and seller can successfully complete the transaction.
So again, certainly is now the name of the game for getting an offer accepted by a seller in today’s environment, although these are the 5 major keys to writing the best offer possible, there are plenty of other ways to make an offer stronger based on each individual buyer and seller so pairing yourself with a knowledgeable real estate agent that can help craft a strong offer while keeping you protected in any market is one of the biggest factors of a smooth escrow. If you would like to discuss strategies that you can use that are custom tailored to your situation feel free to get in contact with me and I would be happy to set up a discovery call where we can go over the current market in your area and I can answer any additional questions you might have about the home buying process. To schedule a discovery call with me CLICK HERE.