Writing a Great Offer

I’d like to share some tips on writing an offer.  It’s the bread and butter of what we Realtors do.

Before I begin, these scenarios are for real life, breathing sellers WITH equity in their home.  Stay tuned for strategies on writing an offer on a short sale property or a bank owned property.

Searching for the right home is fun – getting the home you want – now that’s my job.  But it takes the buyer and Realtor working together to be successful.

Writing an offer can be very difficult for some buyers.  The pressure and stress of signing their name to the line can cause a buyer to get cold feet, sweaty palms and break out in hives.  It doesn’t need to be that stressful.  The biggest hurdle I notice for buyers is choosing their offer price.

Please note, as professional Realtors we cannot tell the buyer the amount they should offer.  Realtors, such as The Caton Team will provide the buyer with a comparative market analysis to show the buyer the value of homes in the area compared to their chosen home – this information will help the buyer decided their offer price.  A buyer must come up with their price on their own and feel comfortable with their price.

To be frank – price is almost always the most important aspect of any offer.  If the price is right for both parties – it can be smooth sailing.  However, there are several other aspects of an offer that also weighs in – the terms of a contract.  For instance, what is the time frame to close escrow? Generally close of escrow is a 30 day window.  Can the buyer close sooner?  Sometimes a seller likes that.  Sometimes a seller may need more time in the home after close of escrow – so a buyer could rent back the property to the seller either at fair market rent or perhaps even free.  How long are the buyer’s loan and property condition contingencies?  A very competitive offer will have a short window for contingencies.

Writing an offer is serious business.  So serious in fact that for the offer to be considered legitimate – it needs consideration.  Consideration is a fancy word for money.  The money comes as a buyers good faith deposit (which is part of their down-payment), generally 3% of their offer price which is put in our office safe until the offer is accepted.   In fact the purchase contract is also a receipt for the good faith deposit.

When a buyer sits down to write an offer – they must be serious about buying the home and committed to seeing the sale through and closing the escrow.  To be frank – if  a buyer is just fishing for a price and does not care whether or not they get the home – PLEASE be upfront and honest with the Realtor.  There are offer strategies for each buyer’s scenario.  Upfront, honest communication is the essence of a healthy Buyer/Seller and Realtor relationship and the only way to attain the client’s personal goals.

On that note, getting the home a buyer wants is truly a meeting of the minds between both buyer and seller.  Very very very rarely have I seen the strong arm approach succeed in OUR local market.  The offer and subsequent counter offers are a method to find that happy middle where both the seller wants and can sell their home and the buyer wants and can purchase the home.

First, a buyer needs to consider what they are up against.  Are they the only offer?  Are there multiple offers?  Has the seller chosen an offer date – where all offers are due and reviewed in one shot?  Don’t worry – this is where The Caton Team shines.

Let’s cover each situation since it warrants its own game plan.  What does it take to write a good offer?

THE ONLY OFFER

This is a buyer and Realtors dream.  Being the only offer – the buyer has the opportunity to write an offer in their favor (within reason).  Being the only offer, takes the edge off the buyer to come in with their highest price and best terms offer.  It can possibly result in a few counter offers back and forth to find that happy medium between buyer and seller.  During the boom – being the only offer was a pipe dream.  Surprisingly, as our local San Francisco Peninsula market recovers – being the only offer is still rare on choice homes.  Given the opportunity remember that buying a home is finding a happy medium between all parties – so come in with a fair market price offer to reflect the homes location and condition is always a good starting point.  Coming in too low – and well – you just might anger the sellers and get just about nowhere.

MULTIPLE OFFERS

A multiple offer situation is when there are several offers coming in on one house and generally the Listing Agent (Realtor to the Seller) will have an offer due date, where all offers must be submitted at that time and then presented to the seller all in one shot.

Here comes the tricky part.  As professional Realtors the Caton Team is proactive and like any good Realtor – will call the Listing Agent to get the scoop.  I introduce myself to the Listing Agent the second I get wind my buyers are interested.  This helps me gauge the activity around the home so I can advise my clients best.  As Listing Agents, we rarely know exactly how many offers are coming in.  We generally gauge the interest by how many disclosure packages are out.  As you may recall from previous blogs – whenever possible the Buyers Agent will get any and all upfront disclosures from the Listing Agent.  The Listing Agent keeps tabs on how many disclosure packages are out and informs the Buyers Agents.  It’s not an exact science, but we make it work.

Another key factor to consider is the sellers motivation for the sale.  We take the time to find out why they are selling and as Buyers Agents we call the Listing Agent to ask some questions.  Some of out top questions are:  Does the seller have to sell?  Or is the seller looking for the right price in order to sell?  Is the property their personal residence or was it an investment property?  Is the property upside down – in other words – is the property a potential short sale where the lenders cooperation is necessary to actually close escrow?  Is their a family crisis or sadly a divorce that is forcing the sale?  Each bit of information we can get upfront helps our buyers with their decisions.    And understanding both involved parties can bridge the gap.

So the offer due date is set – now we hit the table and write the offer.  Suddenly the buyer is feeling some pressure.  Several people like “their” house and in order to get the house the buyer truly must put their best foot forward.  Now, what does that mean?  That means writing, literally, your best offer – the offer you can stand behind and say – “This is my best offer – and if I do not get this house for my price…. then the other buyer paid too much!”   If a buyer cannot say that about their offer – than they are not putting their best foot forward and the buyer may not get the house – or even a chance to be considered.

The flip side.  A buyer writes a low offer – hoping for a counter offer – or just praying the other buyers move on.  Then they find out the home sold for way more and the buyers offer was left in the dust.

As Listing Agents in a multiple offer situation with 10 offers in hand, the seller cannot and generally will not counter each offer.  The lowest offers are often set aside and if there are a couple similar offers, the seller may opt to counter those – but if one offer shines better than the rest – now a days – the seller will take the best offer and not bother countering anyone else.  Like I said, to be truly part of the negotiations, a buyer must come in with their best foot forward – otherwise – sadly – they are left in the dust.

No matter the situation the buyer faces, The Caton Team is poised to work through the maze.  With over 20 years combined Real Estate experience there isn’t a hurdle we cannot tackle.  With so many variables, each offer truly becomes a world in itself.  Each home is unique for their location, condition and amenities.  The task of weighing all the options can be daunting but we are here to help.

Got Questions?  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

Follow my personal journey through homeownership at http://ajourneythroughhomeownership.wordpress.com/

 

A Quick Review on the Different Real Estate Markets…

Google buying a home and words like short sale, REO, bank owned, or regular sale pop up.  All these terms can be a bit confusing.

Right now, on the San Francisco Peninsula market we are experiencing three very different niche markets.

  • Regular / Normal Sale
  • Short Sale
  • Bank Owned Sale

Allow me a moment to explain what these three niche markets are and how they affect the buyer.

Regular / Normal Sale

These may feel like transactions of the past – but a normal sale is when the seller owns their property and the mortgage on the home is below the current home value.  In other words – the seller has equity in their home.  Equity is the profit for the seller.  The best part of a normal sale is working with living breathing humans who will respond to a buyers offer within a normal period of time and provides the buyer with disclosures upfront that sometimes include a recent home or pest inspection.  A quick glance at Redwood City last week (July 2011) showed 73% of the homes on the market are normal sales!  Wow – not what you expect if you listen to the news!

Short Sale

These transactions are trickier than the rest.  A short sale means, the seller owes MORE on their mortgage than the home is currently worth.  They have negative equity.  If circumstances change in the sellers life and they now need to sell their home – the home is placed on the market like a normal sale, however, when an offer comes in and the seller accepts it – it is their bank (where the mortgage is held) that needs to agree to take a shortage on their loan – thus the term Short Sale.  Doing a short sale hurts a seller’s credit less than allowing the bank to foreclose.  For a buyer it means patience since the response time for a bank to review their offer is anywhere between 3-6 months. Generally the seller still resides in the home and can provide disclosures upfront, though money is tight and the seller may opt to have the buyer pay for their own inspections.  In Redwood City last week 17% of the homes on the market were known short sales.

REO (Real Estate Owned) or Bank Owned Sale

The REO or Bank Owned property is a post foreclosure property.  That means the bank has foreclosed on the seller and now the bank owns the home and is selling it themselves.  The good news – a bank can respond to a buyer’s offer within a week – instead of the 3-6 months on a short sale.  The bad news, there are NO additional disclosures on the property aside from the CA mandatory disclosures.  The buyer holds the burden of conducting their own home and pest inspections (plus any other investigating they desire) during their contingencies.   Since the bank has never lived on the property they do not complete a Transfer Disclosure Statement that covers – along with many other items – neighborhood nuisances that a seller would have to disclose.  Have no fear – as the buyer you are protected and will have time to inspect the home to ensure it is in satisfactory condition.  Last week in Redwood City – 8% of homes for sale were bank owned.

(The remaining properties were 1% Auctions, 1% Court Confirmation /Probate Sales)

Got Questions? – The Caton Team is here to help.  Email us at Info@TheCatonTeam.com or visit our website at http://thecatonteam.com/

Please enjoy my personal journey through homeownership at http://ajourneythroughhomeownership.wordpress.com/