When home buyers find their perfect match and make an offer, it can be devastating to find out that the offer was rejected. Many buyers right now are underestimating their market and don’t understand how strong of a sellers’ market we’re seeing in most cities around the country. Especially when buyers are coming from a slower paced market, it can take missing out on a home or two before they realize they’re going to have to pay close to full price to get the home they really want. As buyers’ agents, it can be tough on everyone involved when our clients have to learn the hard way.
If you’re a buyer actively searching in a sellers’ market, we’ve got all the info you need to make your offer count! If you’ve found your perfect home to purchase, don’t miss your opportunity due to these mistakes.
Financing is a Concern
Several years ago, it was common practice to state in the offer to purchase that the buyer had 7-14 days in order to get mortgage pre-approval. However, sellers are now expecting to see pre-approval letters along with the offers they receive. In a hot market, sellers don’t want to risk taking their home off for a buyer who might not even be able to purchase it.
Getting pre-approved before you start looking for homes has always been a good idea because you don’t want to see homes that you love but can’t afford. For example, when buyers start looking in the $400,000 price range and then learn they have to scale back to $350,000, it’s hard to readjust expectations. That $50K makes a big difference in the finishes and size of a home, so it’s better to start out seeing the lower priced homes in order to avoid disappointment and frustration.
Too Many Contingencies = Too Many Ways Out of the Contract
A contingency in a real estate contract is verbiage that allows a buyer to get out of the contract with no penalty. A contract can be contingent on the buying getting financing, selling a current home, getting appraised for the contract price, getting HOA approval to store a boat, being satisfied with flood insurance premiums, or just about anything else. If a buyer puts down a $2,000 earnest money deposit and then needs to cancel the contract due to a contingency, he/she gets the $2,000 money back. Sound too good to be true?
Although contingencies are a great safety net for buyers, sellers these days will only accept one or two. In a multiple offer situation, sellers might even choose an offer with a slightly lower price if there are no contingencies in place. Compare this offer with a full price offer containing 3 contingencies, and you’ll understand how important contingencies are for negotiating power.
Low Earnest Money Means the Buyer Doesn’t Have Incentive to Close
Let’s use the $2,000 earnest money deposit again for this example. Sometimes buyers want to offer a small amount like $500 in case they lose it. Put yourself in the sellers’ shoes knowing that you’re about to take your home off the market (a hot market) for several weeks. During this time, you’ll probably incur another mortgage payment and lose out on daily interest from other buyers.
After three or four weeks, you learn that the buyer is backing out of the contract, and you have to list your home back on the market. Not only have you incurred costs and stress, but you also have a home inspection report that shows an active leak with recommendations to replace some flooring. You might have even already paid a thousand dollars to get this work completed. Now, you have to relist your home and disclose that you’ve had a leak (and that you’ve repaired it). You’ve lost some of your negotiating power because homes that come back onto the market rarely garner as much interest as a fresh, new listing – especially if you have to say that it fell out of contract due to something other than the buyer’s financing.
So now, you’re back to square one but with perhaps some stigma. Once you get your home under contract again, the new buyer is going to expect some more repairs on your dime. In this case, that $2,000 earnest money deposit goes a lot further than the $500.
Earnest money deposits are usually 1-2% of the purchase price, so it’s important to stick to this general rule unless a buyer foresees backing out of a contract (and if these intentions are so obvious, it’s understandable that a seller would reject the offer outright and hold out for a better one).
Worries That the Buyer is Going to be Difficult
Some home buyers are simply difficult to work with, and we’ve found (after 12+ years in the business) that these people can often be categorized into types. There’s the buyer who expects the deal of the century and is going to hen peck the seller for every concession and repair possible (this is after negotiating what is already a fair price). There’s the buyer who is simply rude and doesn’t care whether he offends or is reasonable. There’s the buyer who goes missing during important times like negotiating.
When sellers have the choice, they will turn down even a full priced offer if they think they’re going to be dragged through the mud. And in this strong sellers’ market, they usually have this choice even if it means rejecting an offer and having to wait a week for the next offer.
Too Many Closing Costs Might Cause Appraisal Problems
Let’s say that on a $300,000 list price, a buyer makes an offer of $306,000 with the seller paying $6,000 of his closing costs. Although this nets the seller a full price offer, it also raises a home’s sales price to $306,000. This means the home will have to appraise for $306K.
In an upwards market where prices are steadily increasing, appraisals are a common problem. Most appraisers look at the past 5 months’ history of sales in order to determine a home’s value. A seller might already be pushing the limit with that $300K price, so adding another $6K could lead to renegotiations after a low appraisal.
When buyers ask for too many seller paid closing costs, it also can make sellers question whether the buyer has enough cash to close and whether his financing is solid.
Red Flags That the Agent Can’t Take it to Closing
Newer agents especially seem to drop the ball. A lot. Whether it’s an inability to smooth over repair issues or recommendations on a lender notorious for leaving clients high and dry the week of closing, there are red flags that a seasoned listing agent notices. Again, the sellers and listing agent don’t want to get stuck with a home back on the market. This is also a great example of how price is not always the biggest factor in negotiations.
Multiple Offer Situations Can Become Bidding Wars
When an overpriced, fixer upper home hits the market, it might sit for months with no offers submitted. Even in the strong sellers’ market we’re currently seeing, homes that are significantly overpriced don’t sell. However, when a move-in ready home hits the MLS with great photos, a desirable neighborhood name, and good public schools, buyers (and their agents) notice. In our James Island market just a few weeks ago, a new listing had 26 showings in 1 day.
There’s a good chance that if a fantastic new listing comes on the market, you’re not the only one who will be making an offer. Multiple offer situations are dreaded by everyone (the seller, the buyer, and the agents) because there’s a limited time to choose the best offer and plenty of pressure to make sure it’s the right one. However, this is becoming an increasingly common reality for our market.
In multiple offer situations, some buyers opt to offer more than list price in an effort to secure their dream home. We only advise this approach if you know that you’re not going to find another home in your price range that you love. However, if you’re not head over heels for the home, it’s never a good idea to offer above list price because chances are that you’ll regret it and worry that you overpaid for the home.
There’s no secret way to ensure that your offer will be accepted in a multiple offer situation. However, if you follow the tips above and present the cleanest, best offer you can muster, hopefully you’ll have peace of mind that you did everything you could do. That means submitting a pre-approval letter with your offer, using as few contingencies as possible, giving reasonable earnest money, and giving the sellers reassurance that you can (and will) take the offer to closing.
The Keadle Group Can Take Your Offer to Closing!
The Keadle Group has earned a good reputation in the Charleston South Carolina real estate market based on many years of being among the highest ranked teams in the area. We work hard to help our buyers make the best financial investments possible, and we take pride in getting our sellers the best interest and prices for their homes. Contact us to learn why so many of our past clients refer their friends and family to us!