Submitting an offer (AKA how to put your best foot forward to increase the odds that your offer is accepted)

So you found a house you love! Now it’s time to make an offer. Here’s where the rubber meets the road.

What’s the house worth to you? Let’s do a market analysis of the property so you can figure that out.

Next let’s come up with an offer strategy, which depends on a few factors -

• How long has the house been listed? Homeowners are less likely to accept an offer below asking price when the house is brand new on the market.

• Are you the only offer or is it a multiple offer situation? If it’s the former, then there is the opportunity to negotiate back and forth with the seller to arrive at a mutually acceptable purchase price. If it’s the latter, you will want to present your “highest and best” offer as there won’t necessarily be an opportunity to negotiate. 

• Is an escalation clause appropriate for the situation? An escalation clause enables buyers to make a competitive offer while reducing the risk of paying significantly more than the next highest bidder. Rather than coming up with a flat number when asked for “highest and best”, the buyer starts with an initial number and offers to beat a competing offer by X up to a cap of Y. EXAMPLE: For a house listed at $300,000, the buyer offers $305,000 but adds an escalation clause indicating they will pay $1,000 more than the next highest offer, up to a cap of $350,000. Therefore, if the highest offer is $315,000, the buyer wins the house for $316,000. If the highest offer is $351,000, the buyer would not have the winning bid.

Some things to keep in mind in “highest and best” situations:

• You generally will not have a second chance with your offer, so you need to present your true highest and best - what is the number above which you won’t be disappointed to learn someone else got the house?

• When utilizing an escalation clause, consider having an “odd” number as your cap; something slightly above a common threshold. For example, if you are inclined to set your cap at $300,000, maybe go up to $302,000 to give yourself a better chance of winning. Occasionally, buyers will present an offer with NO escalation cap as a way to avoid being outbid. If that sounds crazy, it is a little bit.

• While we never recommend waiving an inspection, in a competitive situation you might consider raising the threshold for structural defects to something above $2000. Keep in mind that if you raise it to $5000 (for example) that would mean that even if the inspector found 5 things that could cost $4000 each to repair, none of those issues would allow you to re-negotiate the contract since they don’t meet the $5000 threshold. Be sure you have the potential funds to cover any immediate repairs that might come up.

• Instead of waiving an inspection, if there is time, you might consider hiring a licensed inspector to visit the house before the offer deadline and do a pre-inspection. That will cost money, but you might feel more comfortable waiving the inspection if the house gets a clean bill of health.

• If you are getting a mortgage, consider offering to pay the difference between the appraised value and the purchase price, should your bank not appraise the house for what you offered to pay. Only do this if you have the cash on hand, or the ability to alter your financing, to follow through if necessary.

• If you have flexibility with the closing date, we can convey that to the seller.

Winning in a multiple offer situation feels great but ONLY if you are truly comfortable with the offer you made. It isn’t winning if you are the highest bidder but you have serious buyer’s remorse and regret the offer you made. As YOUR advisor, it is our job to help you ride the line between putting your best foot forward and regretting your decision. 

Photo credit: iStock.com/LIgorko