Buying & Selling Houses

7 Ways to Get Your Offer Accepted in a Hot Market

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A newly constructed, modern american home.

Despite the fact we’re officially in a recession, a number of U.S. housing markets remain red hot. Some are even hotter than they have ever been before!

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The reason? A low number of properties are being listed for sale while a high number of homebuyers are looking to buy—especially in light of historically low interest rates. And more buyers means more sellers are getting multiple offers for their properties.

There was a property for sale in my market of Grand Rapids, Michigan, that was listed for $180K, received over 30 offers in two days, and went for $40K over the asking price. Crazy, right?

So, how can you make your offer stand out and get accepted in a multiple offer situation? Here are several tactics to help you write a competitive offer and win the bidding war:

  1. Provide appraisal gap coverage
  2. Increase earnest money deposit
  3. Shorten your inspection period
  4. Cover your own closing costs
  5. Include escalation clauses
  6. Provide occupancy
  7. Waive your commission

Let’s define and go over these tactics in a little more detail so you can use one (or a combination of several) when writing your next offer.

Related: 5 Signs You Shouldn’t Buy That House

  1. Provide appraisal gap coverage

In order to get an offer accepted, you may have to go over asking price. But when offering above the asking price on a property, there is a chance that it may be more than what the bank appraises the home for.

Here’s an example. Say a home is listed for $100K, you go under contract on this home for $110K, but the appraisal only comes in at $105K. In this scenario, you would have to either fork over an additional $5K cash to make the deal happen, convince the seller to accept a new purchase price of $105K, or walk away from the deal.

Sellers are afraid of the latter option, so they like to see a guarantee that when you make an offer over asking price that you are willing to come up with some money to cover the difference, if the appraisal were to come in short.

business partners handshaking after business success negotiation

That is what we call appraisal gap coverage. It is insurance to the seller that you are willing to pay an additional amount over the appraised value of the home, if the appraisal is less than the agreed upon purchase price.

To modify our previous example, let’s say the house is listed at $100K, you offer $110K with $1,000 in appraisal gap coverage, and the home appraises for $105K. Your appraisal gap coverage now kicks in, you come up with $1,000 cash, and the new purchase price is $106K.

If a seller is looking at two equal offers and one offer has appraisal gap coverage but the other offer doesn’t, they are going to go with the offer with appraisal gap coverage.

Plus, in this scenario, you just got the house for less than you were initially planning on purchasing it for, Win-win!

Related: The Psychology of Making Offers

  1. Increase your earnest money deposit

Earnest money deposits are used to show that you have skin in the game when making an offer to buy a property. The amount of money you put down as earnest money differs from market to market but is typically 1-2% of the purchase price. That 1-2% is not a hard and fast rule though. You can increase your earnest money deposit to more than 1-2%—maybe 3% or more—to show you really want a home. You have even more skin in the game.

Now, the earnest money deposit is refundable if you have to back out of the contract due to inspection, financing, or other issues. The earnest money deposit also comes out of your down payment, so it’s not money you are just giving away.

Offers with a larger earnest money deposit can lead to you getting your offer accepted over other offers.

Bonus tip: You can make your earnest money deposit non-refundable if you are REALLY serious about the property. Proceed with caution, though.

  1. Shorten your inspection period

The inspection period is where you get a licensed inspector and contractors to walk through the home and do an in-depth assessment on the structure and systems, such as furnace and AC. This is often the time when homes fall out of contract due to a poor inspection.

If you offer a shorter window for inspection, such as a 3-5 day inspection period compared to a 10-day, a seller might accept your offer over others. They know that if something comes back bad from the inspection, they can go back to market sooner rather than later.

If you do go with a short inspection window, though, make sure you have your contractors and inspectors lined up and ready to move so you can do your proper due diligence.

Bonus tip: Some serious and seasoned investors will even waive inspections on properties they know they are going to do a gut rehab on.

Calendar page marked with drawing pin, closeup

  1. Cover your own closing costs

Many first-time homebuyers scrape just enough money together to come up with the down payment for a home—they don’t have enough to cover the closing costs for the lender and the prepaid expenses for funding the escrow account. A way for property buyers to get this cost covered is by asking the seller to cover a certain amount of the buyer’s closing costs.

This can be effective in a buyer’s market, but in a hot seller’s market, if you offer $100K and ask for $5,000 in closing costs to be covered by the seller, your offer is essentially $95K to seller. If another buyer comes in and offers $100K without any closing costs to be covered by the seller, you are going to lose that bid!

Do your best to cover your own closing costs when writing an offer in a competitive market.

Related: How to Make an Offer on a Property Not Listed on the MLS

  1. Include escalation clauses

The escalation clause can be a very powerful tool when making an offer on a property. Escalation clauses generally say that you will beat any other offer a seller has by $1,000 up to a certain purchase price.

Here’s an example of an offer with an escalation clause: $100K with an escalation up to $115K. If the seller has another offer of $110K, the escalation clause in your offer would be exercised and you would beat the other offer by $1,000, making your purchase price $111K.

In this scenario, you saved yourself $4,000 and got the house. In situations where there are maybe 2-5 total offers, escalation clauses are a great tool to use.

However, when there are a large number of offers on a single property, an escalation clause makes your offer confusing and complicated to the sellers. It may get it moved the bottom of the pile. If you know you are offering on a property that has a lot of offers, your best bet is to send in a clean and simple offer at your highest and best price. The easier it is to understand your offer and compare it to the other offers in the mix, the better your chances of getting your offer considered and accepted.

  1. Provide occupancy

This is a pretty simple one: If a seller needs time after closing on the house to pack their things and move or buy another house, give it to them! Many times, a seller may ask for 10 days or as many as 60-plus days to get their ducks in a row and move out of a property. If you give the sellers the occupancy they need after closing and another buyer doesn’t provide occupancy, your offer is more likely to get accepted.

success-offers

Plus, in many cases—depending on the length of occupancy the seller needs—you may even collect rent from sellers or collect a fee for days they stay in the home past the agreed upon occupancy period. Boom! Now you have a short-term tenant while you look for other long-term tenants. Sounds like a huge win to me!

  1. Waive your commission

This tip is for all of the property buyers who also have their real estate license. In the typical transaction, the seller pays a percentage of the purchase price as a fee to use an agent, and the buyer's agent and the selling agent split that commission 50/50. As an example, say a seller is selling their house for $100K. The would pay to the agents a 6% fee, or $6,000 ($3,000 for each agent).

As a real estate agent representing yourself in a buying scenario, you can waive your right to your half of the commission, meaning the seller now only has to pay $3,000 to the seller's agent. This is more money in the seller's pocket, making your offer very strong!

I used this tactic on the last home I purchased and I beat out more than five offers! My purchase price was $225K, but waiving my right to the $6,750 buyers commission, my offer looked more like $231,750 since I save the seller $6,750 in commissions they would have to pay. My offer was more competitive than an offer with a purchase price of $6,000-plus over my purchase price.

Waiving your commission is an extremely powerful tool in your toolbox as an agent.

One last bonus tip: Find an experienced real estate agent like myself who knows about all of these different tactics and has experience writing them in your offers!

Wrapping Up

I hope that you enjoyed this article and picked up a few new tricks to use when writing your next offer. And don’t forget to use multiple tactics whenever it makes sense.

Best of luck and happy real estate hunting!

Questions? Comments? Other advice?

Join the discussion in the comment section below. 

Connor Anderson is a real estate investor and real estate agent with three years of experience. Connor also works at BiggerPockets managing advertising sales. So far, Connor has accumulated two ren...
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    Barry H. Investor from Scottsdale, AZ
    Replied 7 months ago
    CONNOR - These are great tips. Without the benefit of having read your article, I think I have employed pretty much every one of these except Gap appraisal coverage. I am now a Seller in the Kansas City MO market - one which has remained stable during the recession. Because I sell turn key tenant occupied full remodels with Seller financing which produce 20%+ annual ROI, there is not much haggling on price. Appraisals are not even part of the equation. ROI pretty much determines price. Thanks again for a good refresher.
    Brian Vaughan Real Estate Consultant from Central, TX
    Replied 7 months ago
    Appraisals are a huge part of the equation to most non-cash buyers.
    Erik Delaney Real Estate Agent from Lincoln, NE
    Replied 7 months ago
    That’s an interesting strategy, Barry. Are you doing the remodels yourself, leasing them up, then selling?
    Dan Farkas Real Estate Broker from Grand Rapids, MI
    Replied 7 months ago
    The listing commission of 6% in this example is paid to the Listing broker. MLS policy is to have a cooperating brokerage commission of some set amount. In MOST cases if a buyers agent waves their commission a listing broker has to agree to amend the listing contract with the sellers to reduce the commission from 6% to 3% to have this be any benefit to a buyer or buyers agent working on the purchase of their own behalf. This advice is coming from a broker who has seen the listing broker keep ALL of the commission when this strategy is employed. Since the listing contract is a contract between the listing broker and seller. A buyers agent or broker has no ability to change a contract that they are not a part of.
    Melissa Zimmermann Real Estate Broker from Billings, MT
    Replied 7 months ago
    Dan, same situation here. Our purchase was with the self directed IRA so I couldn't collect a commission if I wanted to... unfortunately, the listing agent said, "I worked hard for this seller and held several open houses, I will keep the 6%". It was in our buy sell that I wasn't going to accept the buyer's agent commission. I would love to know whether the seller called him out on it. You made a great point, that the buyer (buyer's agent) has no control.
    Dan Farkas Real Estate Broker from Grand Rapids, MI
    Replied 7 months ago
    I have been involved in contract where the seller insisted that I keep the whole commission also. They have told me that I have earned it. A purchase agreement does not change a listing agreement. At least, not around here. I would be surprised if it does anywhere else. SO the listing broker does not have to share the commission under many circumstances in our State. Especially those transactions where a buyer wishes not to be represented. As always, find an agent that can describe these documents to you when involved in a real estate transaction. There is more to our job than opening doors. ☺️
    Ray Schwanenberger Real Estate Investor from Florence, KY
    Replied 7 months ago
    Dan thanks for the information. I was wondering how the brokers played into the scenario. As usual it is a little more complicated than it is portrayed to be.
    Dan Farkas Real Estate Broker from Grand Rapids, MI
    Replied 7 months ago
    It really depends on the local market and the listing contract. Our local association has paperwork that is written for the submission to the MLS and really it is only a contract between the Seller and listing broker. Buyers agent is not a party to it. Be careful on this.
    Michael Duncan Real Estate Agent from Honolulu, Hawaii (HI)
    Replied 7 months ago
    Another tip is to write a Cover Letter. So many of my clients have been picked in a bidding war based on their cover letter. The letter shouldn't be used in place of the things in your article, but just an extra tip to possibly push you over the edge. Try to make the letter personal and do as much research as you can on the seller.
    Joseph M. Rental Property Investor from Sacramento Area, CA
    Replied 7 months ago
    All good ideas and nice article. The method that works the best for me is a stack of Franklin's & dead Presidents (along with PoF), a 5-day inspection period and a very quick close. I make my money when I buy, so I will not get into a bidding war. Regardless of interest rates, a majority of sellers understand that Cash Is KING and that time & certainty of closing = money in their pocket which allow them to move on with their lives! *** Happy Father's Day to all you dads other there. ***
    JL Hut Investor from Greenville, Michigan
    Replied 7 months ago
    I live north of G.R. and am selling most all my Rockford homes while crazy people will still bid them up. Not buying. Cashing out after 40 years.
    Bryan Mitchell Rental Property Investor from Columbus, GA
    Replied 7 months ago
    JL, I fully understand. I’m in ATL and I’m surprised that so many sellers are losing homes (MF included) and a full market value not leaving much room for cash flow.
    Bryan Mitchell Rental Property Investor from Columbus, GA
    Replied 7 months ago
    Listing homes not “losing”.
    Karl B. Rental Property Investor from Columbia, MO
    Replied 7 months ago
    Great article. I learned some good things!
    Joe S. Investor from San Antonio
    Replied 7 months ago
    Number five can backfire. You are basically saying that you are offering 100k, but can go up to X. So a smart seller would simply counter at X, instead of the 100k offer.
    Glen E from Savannah, Georgia
    Replied 7 months ago
    I wouldn't expect most sellers to do this. Generally with multiple offers, the listing agent will get a Best And Final Offer from all buyers. These offers will usually expire within 24 hrs, maybe less; because the buyers that lose out on this property will want to quickly be able to move on to other properties, especially if the market is hot. So, instead of accepting one of these offers, the seller makes a counter offer on the one with the escalation clause. But suppose that buyer has kept looking at other houses in the interim; and instead of accepting the counter for the max of the escalation clause, he changes his mind and moves on to another house he has just seen. By the time he declines, the other offers the seller originally had are probably expired. *Maybe* the seller can go back to these other buyers and ask if they are still interested, but they may have moved on too. For many sellers, "a bird in the hand is worth two in the bush."
    Christopher Stacy Rental Property Investor from Wiesbaden Germany
    Replied 7 months ago
    Great tips thanks! I just lost out on a great property to an all cash offer. I am in a pretty stable market in Georgia, but it's still hot there too. The property was on the market for 2 days when I found it and the listing agent said she received an offer almost immediately from another agent and had a backup offer! I guess it pays to be an agent sometimes!
    Dennis Cosgrave Rental Property Investor
    Replied 7 months ago
    I have never and will never get into a bidding war. I do my homework, figure out the highest offer I can make so that the numbers still provide my targeted ROI. I will then submit an offer that is 10% less than my highest offer. If it is accepted, great! If seller counter offers at my highest offer, I will accept. Otherwise, I walk away. If I know that there are multiple offers, I will not waste my time. As a previous poster stated, you make your profit on the buy. In a bidding war, you are likely to overpay and there goes some of your profit.
    Ray Schwanenberger Real Estate Investor from Florence, KY
    Replied 7 months ago
    Dennis I feel that you are spot on! The Northern Kentucky/Cincinnati market is very much a sellers market. We have not been able to get some houses due to bidding wars. As a flipper we definitely make our money when we buy. We analyze the deal and determine what our numbers are, then much like yourself offer a bit lower with room to go up to that number. As a result we were not able to get some properties however, we also did not put in a couple months hard work to make very little to no profit. We learned on our first flip not to over pay. If you do over pay and you're lucky, it will result in a much lower than optimal ROI and not a loss.
    Scott Gilbert Real Estate Agent from Union, NJ
    Replied 7 months ago
    Sadly, here in the NYC suburbs, you'd be walking away most of the time, Dennis. It was crazy before, but now with a tidal wave of people wanting to move out of their densely-packed NYC Covid incubators to the airy and socially-distanced suburbs, houses are getting snatched up sometimes in hours. Sometimes without even going on-market. I admire your discipline, and even if it's often frustrating, it's the smartest way to deal with markets that -- hopefully temporarily -- get out of whack.
    Gerald Johnson Real Estate Agent from Tampa, FL
    Replied 4 months ago
    All of the ideas have there place and time. I make offers by the numbers like Dennis. As an agent in Florida it is a bidding war for buyers. Housing supply is not keeping up with demand and even new construction has slowed somewhat due to lack of building materials being shipped.