Despite housing inventory rising in the Denver metro, we continue to live in a world of competing offers in this seller’s market.
These are a few tips for writing the best offer that may set your Buyer clients apart from other offers.
Additionally, some of the following may simply be helpful in educating your Buyers about the process of submitting stronger offers and setting expectations with them prior to writing their first offer.
1. EARNEST MONEY
One of the strategies that Buyers may want to consider in making their offer the strongest is to have their earnest money go hard (non-refundable) at a certain point in the transaction.
The following are discussion points on how to best guide clients related to using earnest money as a negotiation tool, as well as how to best protect a Buyer’s earnest money:
- Suggested points of the transaction where EM can/could become non-refundable:
- Immediately upon acceptance of the offer giving the Seller the assurance that the transaction WILL close and/or confidence that should it not close, they will be compensated for time off market.
- A tiered approach as the transaction progresses, i.e. an amount becoming non-refundable upon acceptance of offer; an additional amount becoming non-refundable upon inspection resolution; and perhaps an additional amount upon appraisal deadline.
- Increasing the EM amount above what is listed in the MLS.
2. INSPECTION OBJECTION/TERMINATION/RESOLUTION
The inspection process can set offers apart depending on how they are written. The key is to write the offer that is appealing to a Seller, but not put the Buyer in a possible negative situation that could be costly to correct.
- The following are things to consider when advising Buyers on how an offer should be written to be enticing to a Seller while also being protective to a Buyer:
- What does “Health and Safety” mean in an inspection?
- Discuss the Buyer’s understanding of and comfort level regarding radon.
- What will be looked at from a structural perspective?
- Set expectations regarding the mechanical systems of a home – age, service history, etc and suggest providing the Seller a home warranty upon execution of an offer that can then be transferred to the Buyer at time of closing.
- Set expectations regarding the differences between cosmetic items, deferred maintenance items and larger structural items.
- Discuss what a Buyer’s comfort level is and the limits they have regarding cost associated with taking care of some items without asking the Seller to take care of.
- Clearly explain to Buyers what each of the inspection deadline dates are and how it impacts them. Talking points could be:
- What does the submittal of an Inspection Objection mean to both them and the Seller?
- If you choose to only submit an “Inspection Termination” date, what does that mean? Explain that an inspection by a qualified inspector is for their information purposes only.
- If there are items that they don’t want to address personally, they still have the right to terminate the contract with full earnest money in return.
- If you choose to submit an offer with all three inspection dates identified, a Buyer must understand and be comfortable with working toward a resolution if an inspection objection is submitted – once an objection is submitted, they automatically give up the right to terminate, they must continue through the resolution process. If resolution is not reached, the contract can then terminate with full earnest money returned.
- If a Buyer chooses to give up all inspection rights, they must have a clear understanding of the risks they are taking. A written explanation of those risks, acknowledged by the Buyer must be obtained.
3. APPRAISAL GAP AND ESCALATION CLAUSES
Appraisal Gaps and/or Escalation Clauses have become almost a standard practice in our current market. It is critical that a Buyer understands what they are agreeing to with both tools to potentially better their offer from other competing offers.
The following are talking points with your Buyers to further educate them on the meaning of each:
- The partnership between Buyer and their lender, if it is a financed purchase, is paramount when offering an Appraisal Gap and/or an Escalation Clause. It is necessary for a Buyer to understand clearly how each of these items can or may impact their ability to qualify for a loan.
- It is critical to set a “floor” for an appraisal gap as well as setting a “ceiling” for an escalation clause. Oftentimes Buyers don’t understand the difference so explaining the two clearly in writing is a recommended practice.
- Prepare Buyers to submit verifiable funds for the Appraisal Gap amount and the Escalation clause amount. Offering to submit this upon execution of an offer can set your Buyer apart from other offers.
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