How do you write a competitive offer in a red-hot market? In this video, we will look at several components of a winning offer, including:
✅ How much competitive listings in Downers Grove have been selling for over the past month
✅ What percent over asking price would have been enough to win one of these homes
✅ How much you should offer in a competitive situation
✅ Whether or not to offer to purchase ‘as-is’
✅ Appraisal waivers
Eric Andersen, B.A., M.Div.
Owner/Designated Managing Broker, Eric Andersen Homes
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📩 Email: eric@eandersenhomes.com
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Transcript:
In some ways, it’s easier to win anolympic medal today than it is to get an offer accepted on a home. In the olympics, you have three chances to win a medal. But if you’re competing for a home in a multiple-offer situation, it’s winner-take-all. There’s no silver medal for second place. I’m Eric with Eric Andersen Homes, and in this video, we’ll take a look at some competitive listings and see what it takes to present a competitive offer. Now, you might think higher interest rates would have made it a buyer’s market. But in reality, higher interest rates have had the opposite effect. Higher rates have discouraged homeowners from selling, which has created an inventory crisis. For more on this, see my last video,“House or Spartan Athlete?” It’s more of a seller’s market than ever. A buyer’s market is one in which there is a supply of homes for sale in excess of 6 months. Today, the entire Chicagoland area is sitting just below a two months’ supply, which means you really need to be ready to compete if you’re looking to buy.Just like pro athletes review video and scouting reports to prepare for the game, so also we have data we can review so we can put together an intelligent, competitive offer. In this video, we’ll be reviewing what competitive listings in Downers Grove have been selling for over the past month. Here you can see a list of twenty-four competitive listings that have sold in Downers Grove. Average market time was only seven days—quick sales being a strong indicator that it’s a competitive market—and these homes sold, on average, for one hundred four .05 percent of asking price—so ‘asking price’ is really more like, ‘opening bid’. Not even one of these listings went at or below asking price, and one went for about twelve percent over asking price. So what does this mean for writing a competitive offer? It means if you’re going after a competitive, new listing, you should be prepared to compete. Had you written an offer for asking price on all twenty four of these homes, you would have lost every single time. Had you gone five percent over, you still would have lost ten times, assuming the deciding factor was price. If you go five percent over, the data suggests you’ll be just above average. When you’re competing, you only get one shot to win, and you have to be willing to do what other buyers won’t. I always tell my clients to take a ‘no regrets’ approach to your offer. Do some soul searching, decide what it’s worth to you, and offer that. The five percent rule is a helpful point of reference, but if you offer ten percent over and will be upset if you lose, then offer ten point five percent or eleven. If the home’s only worth one percent over asking to you, then offer that. You don’t want to offer two percent over, win, and regret it. Now, price tends to be the most significant term, but there are a few others to consider, which we’ll briefly review here.Closing date is another item you’ll propose in your offer. Thirty days is pretty typical since loans take about that much time, but some sellers will want more time, less time, or flexibility. A good agent can help you determine which is most appropriate. You’ll also let the seller how much earnest money you’ll put down if they accept your offer. My advice here, if you’re in a competitive situation, is to offer as much as your down payment as you’re comfortable with. Most sellers regard one percent of asking as a bare minimum. Ten percent’s a healthy amount, but all things being equal, if you’re a seller and have two offers for the same price and other terms, they’re more likely to go with the one who’s offering more earnest money. Financing terms are also included with the offer, so if you’re getting a loan, make sure your lender has reviewed your financials and has you credit-approved. Self-reported financials on a preapproval make for a much weaker offer.If you can offer cash, better still. The figure I’ve been seeing says about twenty five percent of recent sales have gone to cash buyers, and I’ve recently been involved in competitive situations with more than one cash offer. Three other considerations for a competitive offer I’d mention here are as-is, the inspection, and appraisal waivers. First, as-is. I don’t think I’ve ever been involved in a competitive, multiple-offer situation where the winning offer didn’t go as-is. I recently had some clients lose out on their dream home because they were in a competitive situation and didn’t offer to purchase as-is. They went in $50k over with cash, but as-is was the deciding factor, and they didn’t include it. Now, there’s a big misconception with as-is. A lot of buyers think as-is means you can’t have a home inspection, which isn’t true. You are able, and encouraged, to have a professional home inspection even when you purchase as-is. As-is means you’re pre-empting the right to ask the seller for repairs or credits as a result of the inspection. You can even cancel the contract if you don’t like what you find during the inspection. So why bother doing an inspection when buying as-is? Two reasons. One, it’s a diligence item. It allows you to decide if you’re still comfortable moving forward with the purchase now that you’ve seen all of the home’s warts. And two, it gives you a punchlist of items you might want to address yourself after closing. But the seller won’t be making any repairs or concessions due to the inspection when you offer as-is. The inspection is an informational, take-it-or-leave it endeavor when you buy as-is.Some buyers will chose also to waive their inspection in the interest of presenting a stronger offer.However, I always advise against this unless you really know what you’re doing, for example, if you’re a professional contractor who’s buying the home to rehab it. But buying a home is too expensive to roll the dice if there are some major issues, so I personally would never waive an inspection. The final consideration I’ll mention here in terms of presenting a competitive offer iswhether or not to include an appraisal waiver. If you’re paying cash, this is a non-issueand one of the reasons cash makes for a stronger offer than financing. In most cases, when you get a loan, lenders will have the home appraised and base your loan on the amount the home appraises for. With an appraisal waiver, you’re still having the home appraised but offering to pay any difference between contract price and appraised value out-of-pocket. This is a fairly common feature of winning offers, particularly when it’s competitive and the home goes several percent over asking. I recently sold a home that went fifteen percent over asking, but the home appraised even higher than that, so the buyers didn’t have to bring anything extra to closing even though they paid well over asking price. There are also some options for offering limited appraisal gap coverage, which we can discuss if your situation calls for it. I hope you’ve found this video helpful. Be sure to like the video and subscribe to my channel for regular market updates, tips for buyers and sellers, and other videos about Burr Ridge and the Western Suburbs of Chicago.If you’re looking for elite-level coaching for writing an offer, or if you’re thinking of selling and would like to take advantage of the current market, reach out anytime. I’m Eric with Eric Andersen Homes, a family-owned brokerage where we treat our clients like family.