Curve

Study: Three strategies that can make or break your offer on a house

Erik J. Martin
The Mortgage Reports contributor

How to make an offer the seller can’t refuse

It’s a home shopper’s worst fear: being outmaneuvered by a rival buyer.

Few things are more frustrating than making an offer on your dream home, only to have a savvier buyer snatch it out from under you.

But there are strategies you can use to improve your odds in a bidding war.

One involves an all-cash transaction. Another suggests writing a letter to the home seller. The third calls for waiving a real estate contingency.

But make sure you get pre-approved before doing any of these things. Bidding strategies are no good unless you — and the seller — know you can really afford the house.

Get pre-approved before you make an offer on a house (Jan 18th, 2020)

3 strategies to beat the buyer competition

A brand new study by Redfin revealed three key tactics for winning a bidding war and beating out another home buyer:

  1. Offer all cash — This strategy was found to improve a competitive offer’s chance of success by 206%. That’s up from 97% measured in 2017
  2. Write a personal letter to the seller — Doing so can improve your likelihood of success by 59%. That’s up from 52% in 2017
  3. Wave a financing contingency — This tactic can improve your odds by 20%. But that’s actually down from 58% in 2017

Two other strategies — conducting a pre-inspection and waiving the inspection contingency — were found to not really improve a competitive offer.

Come with these strategies and a low mortgage rate in hand, and you’re set to make a winning offer on your dream home.

Find a low mortgage rate today (Jan 18th, 2020)

Make an all-cash offer. Improve your odds by 206%

Daryl Fairweather, chief economist at Redfin, says providing an all-cash offer gives you an incredible advantage. In fact, it increases your chance of success by more than 200%.

“An all-cash offers signals to the seller that you are financially stable and committed to the home. They generally seem much stronger and attractive than financed offers are. That’s especially true in cases where lenders are skeptical,” she says.

Offering all-cash is particularly effective when other strategies haven’t cinched the deal.

“It might be the last resort that wins you the home if you’ve already waived contingencies and provided a personal letter,” notes Fairweather.

“It’s not uncommon for a seller to even select a slightly lower offer from an all-cash deal just for the increased certainty.” –Thomas Kutzman, Co-CEO, Prevu Real Estate

Thomas Kutzman, co-CEO of Prevu Real Estate, agrees that an all-cash offer is impressive.

“Cash is king. Offering all cash reduces a tremendous amount of risk for the seller. Cash deals close more quickly. And they’re not subject to mortgage underwriting risk,” he says.

“It’s not uncommon for a seller to even select a slightly lower offer from an all-cash deal just for the increased certainty.”

Other all-cash offer considerations

Of course, you should only consider this move if you have the money saved up.

“Don’t drain your entire savings and retirement funds to purchase a home. Instead, consult a local agent about realistic home options that might be less competitive,” Fairweather recommends.

Also, don’t trick yourself into thinking a far-lower cash offer is better than a bigger financed offer.

The price you offer is just as important, says Gay Cororaton, director of housing and commercial research for the National Association of Realtors.

“What should matter to the seller is your price offer, not necessarily whether you’re making an all-cash offer or obtaining a mortgage,” Cororaton notes.

Getting prequalified can show a seller you’re able to make good on your offer, without having to fork up all-cash.

She adds that, in October 2019, only 19% of existing home sales were all-cash transactions. That’s down from 23% one year earlier.

“That’s because mortgage rates have come down while home prices have gone up, making a cash purchase more difficult,” she says.

“Also, buyers can get prequalified to show to the seller they have the financial wherewithal to push through the transaction.”

Get prequalified for a mortgage here (Jan 18th, 2020)

Write a real estate offer letter. Improve your odds by 59%

Many people won’t be able to make an all-cash offer, and that’s ok. There are other ways to sweeten your offer as a home buyer.

Try writing a personal letter to the seller. It’s proven to work for many, and it’s 100% free to do.

“The most effective notes to sellers include heartfelt stories, special observations about the home, or even some humor,” says Fairweather.

“Writing a personal letter is a very human gesture that could put the seller at ease. And it could make them more confident about you as a buyer.”

Fairweather adds, “It creates a connection you can’t get through money or waived protocols. I’d recommend this strategy to anyone who finds themselves in a bidding war and needs that extra edge.”

“Writing a personal letter is a very human gesture that could put the seller at ease… I’d recommend this strategy to anyone who finds themselves in a bidding war and needs that extra edge.” –Daryl Fairweather, Chief Economist, Redfin

Jason van den Brand is CEO of Reali Loans. He says he’s written a personal letter to the seller every time he’s purchased a home.

“Especially if there are multiple offers close in price, you can tell your own story. You can paint a picture of why you are the best person to serve as the next homeowner,” van den Brand says.

Kutzman recommends explaining to the seller why you love the home and the neighborhood.

“Give a thoughtful background on you and your family. I’ve even seen some buyers include a picture of their dog in the letter. It certainly humanizes your offer,” he explains.

Waive the financing contingency. Improve your odds by 20%

A “financing contingency” in a real estate contract specifies that your offer is dependent on being able to secure financing. In other words, you can’t buy the house without a mortgage.

By waiving this contingency, you risk forfeiting your deposit to the seller if your lender backs out of the deal.

But it can also give you an edge over other interested buyers.

“Waiving the financing contingency in a bidding war strengthens your offer. You are demonstrating that getting financing won’t be a problem.” –Jason van den Brand, CEO, Reali Loans

“Waiving the financing contingency in a bidding war strengthens your offer,” van den Brand says. “You are making a statement that you are well-qualified. You are demonstrating that getting financing won’t be a problem.”

Fairweather cautions that when bidding wars heat up, this move really won’t help you win. But it will help keep you in the game.

“Buyers who know that multiple offers are on the table will waive the financing contingency simply as a first step in what could be a series of strategies. If you feel secure enough in the home and what it has to offer, I’d recommend this strategy,” says Fairweather.

Kutzman advises consulting closely with your real estate attorney before choosing this option.

Verify your new rate (Jan 18th, 2020)

Be prepared for competition

The good news is that bidding wars are on the decline. Only 13% of Redfin offers faced competition between January and September 2019. Two years earlier, that number was 55%.

“But the truth is that you’re likely still going to face multiple offers – just not as many. That’s why making an all-cash offer is still recommended,” says van den Brand.

“Even if you’re fairly certain the home you want won’t get other offers, it’s important to have strategies in place. Otherwise, you could leave surprisingly disappointed,” Fairweather adds.

Your next steps

Before you can make an offer on a home, you want to make sure you can afford it. Come to the table with a pre-approval letter in hand. That way, both you and the seller can feel confident your offer is a good one.

You can start the pre-approval process right here.

Verify your new rate (Jan 18th, 2020)