Why the highest offer won't always get you the house
Keep these five things in mind when entering a potential bidding war.
Conventional wisdom suggests that during negotiations, especially in a multiple-offer situation, whomever throws the most money at the seller will snag the house. That's not always true.
Sure, a hefty sum on an offer is the first thing that every seller wants to see, but any good real estate agent will advise their seller that each offer is a sum of its parts.
Here are five things to keep in mind to help you try and beat that higher offer.
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1. Cash is king
The bottom line is if you can buy with all cash, you will likely win out over a higher-price offer. This may sound like a lot to try and scrap together, but many people do. According to RealtyTrac data, 43 percent of all home sales the first few months of 2014 were all-cash deals. Savvy sellers know the benefits of an all-cash buyer: There is no issue involving mortgages and lenders, the escrow closes faster, and there is no appraisal to worry about.
2. The next best thing to cash: a preapproval letter
A preapproval letter is the confirmation that you've acquired from your mortgage broker or bank that says you're ready to buy in a set price range and have been preapproved for the loan. In essence, the preapproval letter turns you into a virtual cash buyer, as mortgages are harder to come by these days. People may be offering to pay more, but if they are not preapproved, you will have the leg up, even at a slightly lower price.
3. Timeline flexibility
"Closing" is generally 30, 45, 60 or 90 days. Customizing the length of the closing to suit the seller's needs can often seal the deal over a higher priced offer. Sellers will generally want a fast closing, usually 30 days. If you have all your ducks in a row, you may be able to do this. However, what if the house the seller is are moving to won't be ready for 60 days? They'll need more time. Find out what they need, and then give it to them. I've seen many lower offers win using this tactic.
4. The 'Please let me buy your house' letter
I know, I know, you are thinking this is soooo cheesy. However, a friend of mine had three similar offers on the table when he was selling his house. Two of the offers came with heartfelt letters. He was actually put off by the buyer who didn't send a letter because the others did and it made a huge impact — and he sold to one of the letter-writers, even though it was a slightly lower priced offer than the non-letter writer. Writing a letter may not get you the deal, but if you are the one offer that doesn't put pen to paper, it could lose it.
5. Not overloading on contingencies
Contingencies are negotiating tools that give you an opportunity to walk away without consequence. The most common contingencies are the inspection, the financing and the appraisal. However, every contingency that you add has the potential to make your offer look weaker, because it makes it that much harder to close the deal. Lighten up on them and make sure you really need them before building them into your offer.
Here's some more details on specific contingencies and how to handle each:
- Contingent upon inspection: I have heard other experts give you the "tip" to forgo the inspection contingency to make your offer more attractive. Here's my advice: NEVER give up this one. After your inspection, you give the seller your list of problems, current and potential, along with the opportunity to fix them, make a price adjustment or give you a credit back. If the seller does not agree to any of your requests, you can walk. You take a huge risk if you wave this. A much better option is to tighten up the time line and offer to do the inspection in the first few days after opening escrow and to give a response to the inspection results within a few days.
- Contingent upon financing: Again, this is another contingency you should never omit in your deal, unless of course you are paying all cash. With most 30-to-45 day closings, you will usually have 17 to 21 days to get your mortgage approval. Having that pre-approval letter will make this finance contingency less of an issue for your seller.
- Contingent upon appraisal: It's possible that the house may not appraise for what you have offered to pay. However, if you have done your homework, have analyzed the comps of the neighborhood and are comfortable with the price you have offered, then you might consider waving this one. The downside is that you will have to come up with the difference under the negotiated sale price. Waving this contingency really gives you a leg up over the competition, especially in a hot market where the seller is trying to get top dollar.
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