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Tips for Making Stronger Real Estate Offers

by James W. Vermillion III on December 30, 2012 · 12 comments

  
Contract

Buying properties is the essence of real estate investing. It sounds so easy but those first several investment properties seem to evade new real estate investors time and time again. Why? When looking at what it takes to make a strong offer on a property far too many people focus on one thing, PRICE. While dollars and cents are very important, price is only one component of a winning offer.
Put yourself in the seller’s shoes; of course you want to get the most money possible, that’s a given. But what happens when two offers come in at the same price, how then does a seller decide which offer to choose?

  1. Price: we have already mentioned price and it is generally speaking the first thing considered. A seller wants to receive the most money possible.
  2. Odds of Closing: nothing makes selling a property more frustrating than buyers who cannot perform. Sellers want to accept an offer they are confident will close.
  3. Speed of Closing: we are an impatient society and sellers are especially so. Sellers want to close as quickly as possible.
  4. Ease of Closing: the fewer problems and less potential for problems, the better. Sellers are searching for a pain free process.

With these things in mind it becomes a little easier to figure out ways to make an offer which will appeal to sellers and give you a better chance of landing the property. Here are some ways to make an offer difficult for any seller to refuse:

Tips for Making Stronger Real Estate Offers

  1. Increase Earnest Money: earnest money (good faith money) is used in real estate transactions to show the buyer’s intent to purchase the property. The amount or percentage of the deposit varies based on several factors but generally speaking a seller will look more favorably at a larger earnest money deposit, as it shows the buyer is serious, supporting number two in the above list.
  2. Shorter Inspection Period: typical inspection periods vary from market to market but 7-10 days is fairly common. However, if you have a working relationship with a good inspector you will need less time to get an inspection completed which means you can shorten the window on the contract. Being able to complete the inspection process quickly and move forward towards a successful closing helps satisfy number three in the previous list and can help defeat similar offers which move slowly.
  3. Pre-approval Letter: while a cash offer is always king, a pre-approval letter from a lender can help ease any doubts a seller might have about your ability to obtain the funds to close on the property, helping satisfy numbers two and four on the above list.
  4. Fewer Contingencies: the less you ask from the seller, the better (in their eyes). Many sellers are eager to move on and do not want to fool with dozens of nit-picky requests. If you are confident in your ability to assess and analyze properties, you may consider making “as-is” offers, meaning you will not ask the seller to fix any issues with property. Sellers are usually thrilled knowing they will not have to deal with fixing a list of problems (large or small), potentially making your offer much sweeter than competing offers.

Making offers on real estate purchases can be difficult, but knowing what the seller is looking for and being able to cater to their desires will put you in the best position to get those great deals under contract. While every seller is a little different and each is in a unique situation, most have the same end goal in mind; to get the most money for their asset, as soon as possible and with no delays or problems. While it seems like a lot to ask for, and clean closings are not always possible, if you satisfy as many of those as possible, you give yourself a great chance to land some real estate deals.

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{ 12 comments… read them below or add one }

Karen Rittenhouse December 30, 2012 at 11:06 am

Pre-approval letters:
1. never accept an offer from a buyer who doesn’t have one
2. never make an offer to a seller without one

Thanks for the concise article, James.

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James W. Vermillion III December 30, 2012 at 4:59 pm

I agree on both points Karen. Thanks for the comment!

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Joshua Dorkin December 30, 2012 at 1:23 pm

Great tips James. Well put!

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James W. Vermillion III December 30, 2012 at 4:59 pm

Much appreciated Josh!

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Clifford Watson December 31, 2012 at 8:48 am

Thanks for great info. But I have a question about pre-approve letter. Do I need pre- approve letter if I am using private money to fund my deal. Q

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James W. Vermillion III December 31, 2012 at 8:56 am

Thanks Clifford. There are several ways to treat private money in my eyes. Generally, I would recommend making the offer as a cash offer (no financing contingencies. However this is not fully transparent if you ask me, because there is financing involved. To counter that I would add a comment (in special stipulations) that the buyer is using private (or hard money if that’s the case) and attach a letter from the private lender indicating the approval for use of the funds. The good part about doing it this way is it will remain a strong offer, but will be transparent.

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Alan Mackenthun December 31, 2012 at 3:31 pm

In my experience, the earnest money offered doessn’t mean much. It’s rare for it to be used. A cash offer or pre-approval letter and limited contingencies are much more important. An as-is addendum with no inspection is great if you can do it, but you have to be confident that you can recognize and deal with any significant issues. Buying newer homes helps, but doesn’t eliminate the chance of getting stuck with problems that an inspection would turn up.

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James W. Vermillion III December 31, 2012 at 4:24 pm

Thanks for the comment Alan. I am not sure I agree with you about the earnest money, especially depending on what type of property you are purchasing, who the seller is and what your typical earnest money is. It is true, it usually does not come into play, but I think many sellers do care, especially now when so many properties end up back on the market due to failed closings. Additionally, when you are looking at two similar offers it may be just enough to separate the two.

I do agree with you that is not the most important aspect to a strong offer. As for the as-is portion I agree with you for sure, there is a lot of risk involved. Buying newer homes does help decrease the risk for major issues, but you cannot avoid them, in fact, the biggest issue we have come across yet (foundation problem) was in one of the newest properties we have purchased.

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Karen December 31, 2012 at 7:27 pm

James, as a licensed real estate agent, contractor and developer, with years of experience, I thought your article was very well thought out, simply stated, and will be extremely helpful for newer investors. Great job.

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James W. Vermillion III December 31, 2012 at 8:00 pm

Thanks so much Karen, much appreciated!

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Michael January 1, 2013 at 8:10 am

Well said James. I typically put offers in as cash. close quickly 14 days or less. waive inspections & take as is. I have actually had other’s come up to me who followed the sales transaction and ask me how I got the property when they offered more. Has to make you smile. I do only recommend this to anyone that has experience and certainly not if it is their first deal unless they have guidance or working with someone with experience. Good point on the transparency of the cash offer although it typically is not a problem as long as the money is at the closing of course!

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alfred January 8, 2013 at 1:02 am

thank for the tips. hope this tips can make a newbie such as me become better.

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