An offer they can’t refuse
Ask experienced real estate agents about the frequency of multiple offers in today’s market and responses range from “at least 50%” to “every time if the home is under $600,000 and not overpriced.” The combination of historically low interest rates and low inventory has made bidding wars the rule rather than the exception.
Buyers entering the multiple-offer fray, however, can increase their odds of being selected by a seller. Successful bidders attempt to connect with the seller on an emotional level, demonstrate that they have the financial resources to close escrow, eliminate unnecessary contingencies and are flexible and savvy enough to include deal points that address the seller’s individual needs.
Unlike commercial real estate sales, where the bottom line is dollars, the sale of a home typically has a strong emotional component. Many homeowners, especially those who have lived in the same houses for years, care deeply about their home and neighbors.
“Transferring a home is like handing over an heirloom,” said Roger Ewing, managing partner of Prudential California Realty in Calabasas. “Home buying is more of an emotional event than a business event.”
Taking feelings into account worked for Helayne and Joe Levy, who purchased a home in Santa Monica. When the seller put her home of 55 years on the market last year for $925,000, it generated 33 offers, many from developers intending to tear down the dated house.
The Levys followed the advice of the seller’s broker and made their best offer first. Three other parties offered even more than their $1.1-million bid. But a personal touch clinched the deal.
“I wrote a warm letter to the buyer telling her that I lived in the neighborhood and wanted to purchase her home for my family,” Helayne Levy said. “I mentioned that I often walked my dog on her street and that I loved the house.
“While we were in escrow, she wrote me a letter mentioning the names of the stray cats that came by for snacks, and asked if I would continue to feed them. Clearly she was concerned about the future of her home and her neighborhood.”
In a shift from the ground rules of the past, a potential buyer can get an edge by conveying that he or she cares about the house and presenting enough personal information so that the seller starts to care about the buyer.
“When it was a buyer’s market, there was an unspoken rule that a buyer should not be overtly excited about a property because a seller might take advantage of that buyer’s emotions in the negotiations,” said Michelle Lavin Cohan of Re/Max Grand Central in Tarzana. “However in today’s competitive market, the potential buyer should articulate positive feelings directly to the seller or his agent to help humanize the transaction.”
An offer providing a sense of the buyer can stand out in a sea of anonymous bidders, according to broker Scott Greene of Prudential California Realty, Studio City. “I include a picture of the family with a pet or baby if possible along with a personal letter from my client to the seller,” Greene said. “The letter explains how this home stood out from all the others, that they will take care of the house, and that they plan on raising their family in the house.”
Doug and Alicia Jackson were showered with offers when they put their West Hills home on the market in August for $399,000. After countering three of the eight bids they received, they had to choose between three solid buyers with offers well above the asking price. Again, a personal letter decided it.
“I had a hard time letting go of my house because I had put a lot of work and effort into it,” Doug Jackson said. “From the letter it was clear that the house had captured the buyers emotionally. The buyers wrote that when they walked in they felt like they were home and that we would be fulfilling their dreams. I knew they would take care of the house.”
Still, money talks
Central to every home sale is the ability of the buyer to come up with the money. Because few buyers pay cash for a home, qualifying for a loan is the cornerstone of most transactions.
It is important that an offer stress the buyer’s ability to fulfill the financial conditions, said Joyce Rey, a broker with Coldwell Banker Previews in Beverly Hills.
“Sometimes it is references or a letter from an accountant in addition to a pre-qualification or pre-approval letter,” she said. “Anything that will give a seller comfort that the sale will go through should be included.”
Pre-qualification letters provide the seller some reassurance because they suggest that the buyer is capable of qualifying for a loan. But because pre-qualification is issued before a lender confirms the accuracy of the financial information provided by the buyer, it is not a guarantee that the lender will ultimately approve the loan.
Far better is a pre-approval letter from a financial institution specifying that the buyer is pre-approved for a loan at or exceeding the amount in the offer. Pre-approved loans are typically contingent on the house appraising at or above the purchase price.
A strong financial case swayed Kathi Smith and Rich Schmidt in selecting a buyer for their two-bedroom, one-bath home in L.A.’s Picfair Village. After putting the traditional-style home on the market in September for $499,000, they promptly received two offers above the asking price. The couple opted for the lower offer because the buyers looked financially solid.
“The reason we accepted the lower offer was that it seemed more likely that the buyer had the financial ability to close escrow,” Smith said. “They included a pre-approval letter with their offer and a 20% down payment. We were in escrow on another property and needed the proceeds from the sale of our old home for the down payment on the new home.”
In addition to obtaining pre-approval or pre-qualification letters, there are other financial tactics buyers can try to make their offers stand out.
Mike Ferry, an Irvine-based real estate sales expert with a national following, advises submitting an offer as close to the listing price as possible. In cases where the buyer wants the home badly, he recommends offering an amount above the purchase price. And Ferry suggests buyers increase the deposit.
“The standard deposit is 3% of the selling price,” he said. “Offer a 10% deposit.”
Tailor-made terms
After price and financing, contractual terms can be deal makers. Some sellers are interested in long escrows, others in the shortest ones possible. Frequently, an agent is comfortable with a particular title or escrow company and the seller wants the agent to be working with a known and reliable entity.
A seller in a hurry to move will probably decline an offer that makes the purchase of the home contingent on the sale of a buyer’s home. Increasingly common are sellers who want to make sales contingent on their finding homes. The buyer who is not in a hurry to take possession becomes more attractive.
Some savvy buyers are even modifying the boilerplate terms in the standard residential purchase agreements to make offers stand out.
Hooman and Erika Ghaffari were among four parties who had presented offers on a Woodland Hills townhouse. Each offer was above the $415,000 asking price. The Ghaffaris’ offer, although not the highest, was accepted because it presented a strong overall package that included the modification of several standard contingencies to benefit the seller.
The Ghaffaris’ agent, Randy DiSimone of Re/Max Olsen & Associates in Northridge, shortened the home inspection contingency period from 17 to seven days, reduced the loan contingency from 17 to 10 days and removed the appraisal contingency completely.
The buyers also gave the owner the option to stay and rent back for up to two months, a factor that was important to the seller. The strategy paid off.
“My clients wanted to do everything to get the seller’s comfort level to a level 10,” DiSimone said.
*
(BEGIN TEXT OF INFOBOX)
How to get the edge
Real estate agents experienced in multiple-offer scenarios suggest these tips to buyers.
Don’ts:
* Don’t use an inexperienced agent. Find an agent with a good track record and reputation in the neighborhood.
* Don’t say anything negative about the home in the presence of the seller or the seller’s agent.
* Don’t load down the offer with contingencies.
* Don’t offer to purchase personal property unless it was advertised as part of the listing.
* Don’t mention remodeling or tearing down the house in the presence of the seller or agent.
* Don’t delay in responding to a counteroffer or requests for information.
* Don’t make an offer below the asking price if the home is fairly priced.
Do’s:
* Be immediately reachable from the time the offer is made through acceptance.
* Sell a current home first.
* If comfortable with the seller’s counteroffer, sign it immediately and return it without changes.
* Agree to the seller’s title and escrow company choices.
* Write a letter to the seller expressing why you are right for this house.
* Offer a deposit above the standard 3%.
* Have the broker submit the offer in person if possible.
* Provide a pre-qualification letter or pre-approval letter from a reputable lending institution.
* Provide evidence of job history and proof of funds so that the seller will feel confident of your ability to purchase the property.
* Consider shortening the standard contingencies in the residential purchase agreement.
Wendy Jaffe can be reached at
