This regularly-scheduled sponsored Q&A column is written by Val Sotillo, Northern Virginia-based Realtor and Falls Church resident. Please submit your questions to her via email for response in future columns. Enjoy!
Question: I’ve heard the market is extremely competitive these days and sellers are getting multiple offers for their properties. What makes a winning offer?
Answer: Other than the sale price, there are other terms included in your offer that will determine its strength and the value it has to the seller. Of course, every home seller wants to get the most money possible, but they also want to accept a clean and safe offer that is going to make it to settlement without complications.
Flexibility and a willingness to budget are fundamental parts of the real estate negotiation process. In a multiple offer situation, your offer will need to shine above the rest, and the best way to do that is to make an offer favorable to the seller.
Here are some of the terms included in most contracts that have the biggest impact on the strength of an offer.
Higher price = stronger offer. Escalation Addendums are common when there are multiple offers, and allow you to beat any competing offer by a specified amount, up to the highest amount you’re willing to pay for a property. Used correctly, it prevents you from leaving money on the table, while not paying too far above what the rest of the market is willing to offer.
The three most common contingencies are for the home inspection, appraisal and loan. Each provide the buyer with a set of protections that allow them to renegotiate or terminate the contract, without losing the deposit. Removing a contingency or shortening the contingency timeline increases the strength of an offer.
- Home Inspection: It used to be standard for Northern Virginia buyers to include a negotiation period in the home inspection contingency, allowing them to negotiate for repairs or credits based on the results of the inspection or terminate the contract. Now it is much more common for buyers to forego the negotiation period and simply retain the right to void (aka a pass/fail inspection), which is much more attractive for a seller. Even more attractive is when buyers perform a pre-inspection on the property and remove the home inspection contingency altogether.
- Appraisal: If you’re using a mortgage to purchase a home, your lender will almost always require a property appraisal. The appraisal contingency allows you to renegotiate or terminate the contract in the event the home appraises for less than the purchase price. It is common for buyers to remove the appraisal contingency or agree to cover up to a certain amount on a low appraisal to increase the strength of an offer.
- Financing: The financing contingency allows you to terminate the contract without losing your deposit if your loan isn’t approved. Many buyers who have undergone a thorough pre-approval or underwriting process have enough confidence in their ability to secure the mortgage that they remove this protection.
Most sellers want to close as quickly as possible so cash-buyers have the biggest advantage here because they can usually close in a week or less. Offering a quick-close to a seller can give your offer a significant boost.
If you’re relying on a mortgage, sellers are usually more drawn to higher down payments. That’s not to say that a 3-5% down payment (or 0% on a VA loan) can’t win in a competitive scenario, but you are at a disadvantage and will often get passed over when all other terms and pricing are relatively equal.
A thorough pre-approval process by a reputable lender can provide the seller with confidence that if they accept your offer, there is very little risk of the deal falling apart due to financial issues. Sometimes sellers take less money work with a buyer they have more confidence in.
Earnest Money Deposit
The EMD is money held in escrow by the Title Company as security for the seller that you’ll perform under the obligations of the contract. It gets applied against what you owe at closing for down payment and closing costs, but is at-risk if you default on the contract and terminate outside the legal contingencies.
Traditionally, a reasonable deposit ranged from 1-3% of the purchase price, but some buyers are electing to make substantially larger deposits in an effort to establish financial strength.
If the homeowner is still living in the house during the sale, their preference is to close as quickly as possible and then have some time to move out after the sale is complete — this is called a rent-back. It used to be common for the seller to cover the buyer’s daily carrying cost (mortgage + taxes + insurance + HOA fee) for the length of the rent-back, but in this competitive market, a strong offer often includes a free rent-back for the seller.
Whether you’re buying your first home or your tenth, having a local professional on your side who is an expert in his or her market is your best bet in making sure the process goes smoothly. If you’d like to discuss buying or selling strategies, reach out to me at [email protected].
Val Sotillo is a licensed Realtor in Virginia, Washington D.C., and Maryland with Real Living At Home, 4040 N. Fairfax Drive, Suite #10C Arlington, VA 22203, 703-390-9460.