5 Ways To Strengthen Your Property Offer
By JD Esajian on June 15, 2018
In the world of real estate investing, it is essential to take advantage of opportunities that come your way. When you come across a property that is a good fit for you and your business you need to do everything, within reason, to make sure it is yours. You never want to lose a deal based on how you present or structure your offer. In properties with increased demand the smallest thing can make all the difference between walking away with the deal and losing it to a competitor. You need to always know where to draw the line, but if you really want a property you need to tweak your offer to make it most appealing to the seller. Here are five ways to strengthen an offer to get a property you really want.
- Cash (proof of funds). Sellers are not going to wait around to see how you want to structure your offer. In fact, most good deals are time sensitive. If you do not act aggressively in the first 24 hours of a listing you will fall behind your competition. A seller may receive an offer they like and instantly initiate negotiation with them. In high demand deals you almost always need to consider a cash offer. You may not want to use your own capital or rely on hard money, but without it your offer won’t get accepted. With any cash offer it is essential to provide a current statement showing you have the money to close. You can offer cash, but without the statement the seller won’t be confident you can follow through. The statement should be within two weeks of the current date and have more than enough funds to close. Closing cash may not have been in your plan, but if a deal is too good to pass up you need to adapt.
- Pre-approval letter. The only way a seller may consider a non-cash offer is if they know you are close to closing. There is a huge difference between submitting a pre-qualification letter with your offer and sending a pre-approval. More lenders now are accepting partial loan application packages subject to finding a property. They will review credit, income and assets and issue a full approval pending the property, title and appraisal. This can literally cut the loan process by weeks, making your offer much more appealing. It is important that you and your real estate agent stress just how far along in the loan process you are. A seller that doesn’t understand the difference between a pre-qualification and pre-approval will put your offer to the side thinking you still need a full mortgage approval. A legitimate pre-approval isn’t as powerful as a cash offer, but if presented properly can be a few notches below.
- Quick closing. Regardless of how you structure your offer time is always an important consideration. In most cases, sellers want to close as quickly as possible. This is especially the case if you are dealing with a lender on a bank owned property. Even though the market has improved and deals are closing, they still have scars from getting burned by buyers not being able to follow through. If all other things are equal, they are going to look at the offer that has the quickest closing. Every day a lender retains ownership of the property they are on the hook for the taxes, insurance and utilities. Two offers in the same price ballpark but closing dates weeks apart will be separated by who can close the quickest. Sellers don’t want to wait for your funds to clear or until the closing is most convenient for you. If you have available funds always try to close as quickly as possible.
- Waive contingencies. Another important consideration for sellers is the ability to close as easily as possible. No seller wants to deal with a buyer who is looking for excessive contingencies, credits and wants things on their terms. This may work on properties with minimal interest, but not on a deal where multiple people are interested. The more contingencies you can waive or eliminate the more attractive your offer instantly becomes. You need to pick and choose your battles and know what you are getting into before you waive inspections or anything else on the contract. Once you waive these you have little recourse in the event of the unexpected. That being said, if you plan on doing a full gut rehab finding something on the inspection probably doesn’t matter to you anyway and you are wise to waive it and take ownership asap.
- Increase earnest money deposit (EMD). Sellers like dealing with buyers that have some skin in the game. The best way to show this is by increasing your earnest money deposit on the contract. With your deposit you could potentially lose this money if you back out of the deal or if the deal falls through because of something on your end. However, if you have done your due diligence and feel the risk is worth the reward this can be a great way to show you are serious about the property and seal the deal.
The best offers usually have a combination of all these elements. Every deal is specific, but if you find a property you really want you should use these options to make sure your offer is the one accepted.