How much should we offer?

Think broad strokes; time, security, money. Offer as much as you are comfortable and able.

Finally, a house in your first-choice neighborhood came up for sale. You’re one of many people waiting and watching for an opportunity to move into the community. Most likely, you and several others will sit down with an agent to write an offer, and I am sure of this; everyone will ask their agent the same question, “How much should we offer?” 

How much SECURITY do we offer?

I think you should offer as much of everything as you can and still be comfortable. By everything, I mean security and money. Security is time and assurance. Before deciding how much money to offer, know your strengths. Are you able to cover a few thousand dollars in unplanned expenses? Is there work you’re willing to do? Can you give the seller their choice in closing dates? Do you have the necessary documentation to prove to the seller that you have the money in the bank, or that the bank is committed to loaning the money you need? What can you put in your offer, or exclude that gives the seller the evidence that you are as committed to getting to closing as they are? I don’t mean a love letter, either. The kind of information that a seller sees as proof of unequivocal commitment is not something we say, but something we can prove, show, promise, and back with an acceptance of risk. 

How much money do we offer?

Sales of relevant homes in the neighborhood will be used by an appraiser to place a value on the property. Your mortgage lender will loan an amount relative to the appraised value. Regardless of the price you offer, the appraisal will be what the appraiser decides it to be. If the asking price is $400,000 and you offer $410,000 or $390,000, and the seller accepts your offer, you’re okay unless the appraiser decides $380,000 is the value. In that case, you may need to come up with the difference in the purchase price and appraised value.   

I can not assure anyone that they can get a home for less than the asking price. I can tell you a combination of Seller-favorable terms and a price at or above the asking price will improve your chances of an accepted offer. To set yourself apart from everyone else, regardless of the price you offer, show the seller that you have the means and are committed to keeping the price as agreed if the appraisal is less than the sales price. Doing this is a significant offer of security. So is allowing the seller to select the closing date. Saying I’m flexible means nothing. Structuring the contract’s terms to enable the seller to choose a closing date shows the seller that you are. 

Contingencies. Less is More.

Every real estate agent or an attorney can wrap your offer in so much plastic bubble wrap that you can’t possibly be hurt. Your offer won’t be accepted, but if your goal is not to hurt and not own the house, then wrap it up as you wish. Contingencies were created to protect someone from something someone fears. If you don’t have that fear, don’t include the contingency. Fewer contingencies increase the feeling of security the seller has, which’s a good thing for you. 

So, how much should we offer?  Think broad strokes; time, security, money. Offer as much as you are comfortable and able. 

Matching Intentions Will Get Your Offer Accepted

For at least three years running the market has favored home sellers in the Madison, Wisconsin area market. With too few homes for sale and a deep pool of able buyers, it’s common to see 5-20 people bidding on homes just listed. The odds of getting your Offer accepted, even at 1 in 5, appear precarious. At Essential Real Estate, we believe the odds are not as daunting as they appear when you eliminate the offers from people who have intentions that don’t match those of the seller. I contend the unintentional buyers account for at least 3 out of 5. If I’m right, your odds of outbidding (without overpaying) competitors are pretty darn good.

Set My Equity Free

Different motivators cause a person to put their home on the market, but the reason the house is for sale is always this: The homeowner wants their home equity to do use for some other purpose than own this property.  Some people decide to sell and put their homes on the market before committing to doing the next thing, but when they commit to whatever comes next, their intent becomes clear; set their equity free.  

The Accepted Offer Goes To The Intentional 

Our buyer clients who are sincere about their intentions are more likely to accept ideas on how to structure their Offers to match what we know of the seller’s intent. The intentional buyer can show by the terms of their Offer that they are committed to getting to closing on time with no risk to the seller. Reservations, (conditions that allow for a buyer to change direction before closing) threaten the seller’s security of achieving their reason for selling. 

Unintended Consequences  

We can’t blame home buyers for submitting wishy-washy Offers. The typical person drafting an Offer sees the purchase agreement as a standard-fill-in-the-blank form. Common contingencies make their way into Offers because the buyer was not aware of their opportunity to make an informed decision on the merits of everything stated in their Offer. The unintended consequence is a rejected Offer or a counteroffer for more money in exchange for the risk the buyer’s Offer expects the seller to carry. 

You Want Your Equity. I want you to have it. 

Showing the seller that you want to own their house is not the same as showing the seller that you wish to satisfy their want. Put yourself in a better position with this perspective: If I’m selling, I want my equity. I also desire certainty. Every seller might say this: The buyer I am willing to enter into a contract with is the person who wants me to have their money to become my capital and wants me to get it without stress. 

Letters, texts, emails do not tell the seller that you want them to have your money as their equity. They say a lot about you wanting something they have. They say something about what you want the seller to do for you. In a seller favorable market, the seller might be interested in your wants, hopes, dreams, but they’re more interested in your money and what you can do for them to make the process a sure thing for them. Your Offer can be structured to match the intentions of the seller. Those are the Offers most likely to be accepted. Know your intentions. 

Evaluating an Offer on Time, Money, Security,Commitment.

Full price offers capture attention and soften senses to the rest of the terms. The desire to get all of the money, or more, causes a seller to accept insecurity, release control, and commit to people who are not committed to the transaction. Helping a client evaluate the Offer based on all of the factors that matter most at some time in the transaction begins with expectations.

Maybe we spend too much energy on establishing a price when much of that energy could have been spent on aligning our expectations with reality. Reality is subjective (OK to disagree). A person’s goals and tolerance level are never in line with the terms of the current nine page Offer to Purchase in Wisconsin. We use a standard form to match unique expectations and we are surprised when we have conflict. Watch a seller sink from thrilled to a puddle when the full price offer is loaded with if, and, but, maybe, and high standards. As listing agents we have our work cut out in these cases but we can turn this frown upside down with patience and smart thinking.

To find common ground we have to align more than money between the parties. Time, money, security, and commitment aligned are indicators of the road ahead. Time of course is closing date and length of time a person has to wait for the other party to decide. Money is the purchase price and related costs to sell. But what is security and commitment? They are a series of the most important provisions of the Offer at some time or another from acceptance to walking out with a check. Sooner or later in the transaction, the security or commitment of the parties will stress or relieve one side or the other.

Let’s take security first. When you know the Offer to purchase has contingencies (risks, exit doors) easily identified and others laying in the weeds you are on your way. When you can interpret AND explain the purpose, impact, consequence, and maybe even the origin you have a chance to eliminate peril before the parties become entangled. Your client wants an opportunity to pick and choose what sentences of the Offer make them uncomfortable, will cause them to worry about the uncertain outcome (cause of worry). We can give them that chance by understanding what we are seeing, and really reading what we are seeing. (Paragraphs are made of sentences. Seeing one sentence and disregarding the rest is the common cause of problems. Words matter and skimming for what you want to see won’t expose the intentional words and those are the ones we regret not seeing when we see trouble.)

All sentences and all contingencies do not have to be used and in most instances using all contingencies is certain death to the Offer. A surgeon knows which pieces of the body can be taken out to keep us alive and she has the tools to cut and sew so the body works. Risk lives in the contract document. It’s either mine or yours. It’s either risk or not. It impacts time and money. The trick is to look at the risk from the other side of the transaction when you are on this side of the table. The question isn’t always what’s best for me? But instead, what’s more appealing to you. “Ask not what your Offer can do for you, ask what your Offer can do for the other guy”.

Commitment is the tie that binds buyer and seller. The shared belief that you want to accomplish the goal of the Offer by staying inside the boundaries of the agreement is apparent when you see it, and obvious when it’s missing.

Commitment looks like this: Prepared: person knows what they need to know before they start. They are informed and don’t require contingencies which allow them to change directions while the other side is left waiting. A prepared buyer has an underwritten letter of approval from a legitimate lender. She puts something more than typical in as earnest money. He does his research before so he doesn’t add contingencies he doesn’t need. Exit Clauses are doors. Some are two car garage wide. Others are scuttles in the closet ceiling. If a buyer can fit through, it doesn’t matter how wide the opening. An uncomfortable exit is still an exit.

A committed seller knows what they can tolerate, where they are going, when they are going, and understands the relevance of time, money, security, commitment before they see an Offer. A committed buyer does not dress the same way as the typical, risk averse buyer. Customization of their Offer shows who they are in terms of commitment. A person either has reservations, wants opportunity to reverse course, or is certain and driven to stay the course. If the Offer is extended by contingencies for issues which could have been resolved before the Offer was made, you have an indicator. When the earnest money is typical the commitment might be typical. When the terms eliminate the fear that causes stress for the Seller we can see commitment.

The licensee and attorney who take the time discover their client’s true security needs and commitment will customize an offer that speaks clearly to the seller and exceeds their expectations. Happiness and appreciation grow side by side. Expectations kept in check and expectations intentionally met will get your client the love they want. The closing date to an expectation matched client is easy to see. It’s right there. Every person who wants to provide a value in real estate can do that y learning the contracts. The one who does more to learn isn’t always the most experienced person in the process, but they are the most instrumental.