Buyers – 8 Ways To Make Your Offer Stronger

Buyers   8 ways to make your offer stronger

Now, it’s March 2021, and we are in a super competitive sellers’ market here in South Florida; and across most of the United States, it is just a very strong sellers’ market. A lot of buyers looking to buy, interest rates are very low historically, and not many people looking to sell property, it’s making for a very tight inventory and a lot of money in the market, meaning that it’s a strong sellers’ market and as a buyer, you’ve got a lot of competition.

So how do you make sure or improve your chances of getting your offer on a property accepted above the next person? That’s what we’re going to talk about in this video. And there are basically three categories of areas that we can break this into. The first one we’ll not spend much time on, but a little more on the second two.

The first category is price, second is surety of closing and the third is attitude. We’re going to spend no time whatsoever on price. Obviously the higher the price you can offer, the more likely you’re going to get your offer accepted over someone else’s, but it’s not all about price. What you’ll learn, and if you don’t know this already, is that the surety of closing is extremely important.

Now, if you’re a professional investor or you’ve been doing this a little while, you’re dealing with a lot of real estate brokers. And especially if you’re looking to pick up multi-family property in our market here, you’ll realize there are just a really small handful of real estate brokers that do 90% of the deals here. It’s maybe up to 20 brokers that just do over and over again are the listing agents on most of the multi-family product here.

When that seller is represented by a broker, which is the case most of the time, the broker is going to be looking out for that seller and making sure that whoever goes under contract with the seller has the highest chance of closing the deal. The brokers do that not only for the seller’s interests, but for their own, right? We as brokers want to make sure that we’re going to get paid at the end of the day so we want someone who’s going to close on a deal.

Surety of closing is extremely important. There are a few things you can do as a buyer to increase the strength of your offer by making it appear that you have a stronger likelihood of closing on the deal versus someone else. The second point after price is, number one, what type of terms are you offering on the property? Is it a cash offer or is it a financed offer?

Now, obviously, not everyone has enough cash to purchase every piece of real estate, especially once you start getting into some of the higher price multi-family stuff. Most of that is financed. There are some cash buyers, a good number of them down here in South Florida, but let’s assume you’re going to go in with financing. Obviously, cash is the best because there’s no financing contingency in that.

But set that aside, let’s say you’re going to finance the offer. You want to make sure that your financing is solid. That means a few things. You want to get in touch with your lender. Know who you’re going to be doing your loan with before you even make the offer. You should already have opened conversations with mortgage brokers, loan officers that you already have relationships with or you’ve had a good introduction to so you know that that lender is solid.

Beyond that, you’re going to want to make sure that the lender has all of the information they need, as much as possible, to underwrite you as an investor. They may not have the information on the property yet, but you want to have provided that lender with as much information as they need to be able to say, “Yes, you are financeable and we’re happy to do a loan for you provided that you bring us a good-looking property or a deal that makes sense.” Right? Then along the lines of financing, you’re going to want to find out from that lender how quickly they can get that financing in place, and we’ll get to that in a later point.

The third thing that you want to do here to increase your likelihood of getting an offer accepted on a piece of real estate, you want to minimize your contingencies for inspections, right? Most contracts are going to have some sort of inspection or due diligence period in them. That is a time in which you can physically inspect the property. When you make that offer, if you have in your contracts or in your offer a very long contingency for property inspections and due diligence, that’s obviously a weaker offer than someone who comes in with a shorter one.

For example, if you make an offer asking for 30 days to do your due diligence on a property, and the next guy comes in and is offering seven days, he says, “Hey, look, I just need seven days to figure out if I want to buy this or not,” that guy’s going to get the deal over you, all other things equal. Obviously, the strongest offer you can make in this regard would be waiving any type of inspection period or due diligence period.

Now you’ve got to be very careful if you’re doing that. I recommend that only if you’ve got a good amount of experience already. And you can kind of get around that in some ways, if you are able to get access to the property prior to making the offer and get as much of the information that you need to do your due diligence prior to even submitting that offer. The more information you can get upfront, the more of those contingency items that you have on your due diligence checklist that you can check off before submitting your offer, the tighter you can make that due diligence or inspection period and the stronger offer is going to be.

Number four, back to financing. In your offer, you’re going to have some sort of contingency period for financing to be approved, to get a loan approval. Typically, depending on the type of property you’re buying and the type lender you’re working with, a typical loan contingency is going to run somewhere between 30 days and 45 days. Now, if you’re doing a larger multi-family acquisition and you’re working with agency debt, then that might go up to 60, 65, 70 days.

And obviously, the longer that contingency period, the weaker your offer is going to appear to a seller or the listing agent, right? Because if your loan doesn’t come through in 60 days, if you’ve got a 60-day financing contingency, you can’t get the financing approved in 60 days, that seller has just wasted 60 days of their time in a very strong market. They’ve lost opportunities. They don’t want to lock up their property with someone with a long financing contingency.

What you want to do is shorten that financing contingency as much as possible. Now, how do you do that? Well, it goes back to my earlier point. You simply want to meet with your lenders, talk to them, have a phone call with them, give them as much information as they need, and really get all your ducks in a row so that that financing can be approved as quickly as possible.

The key to this is picking the right lender, okay. Lenders, just like in any other profession, you’ve got good lenders and you got bad lenders. You’ve got people with a lot of experience, people with not so much experience. And you’ve got to be careful because some lenders are very familiar with the type of investment you’re making, others may not really be in their wheelhouse. You want to make sure to get with a lender who understands the property type that you are buying. Okay, so the short story is to minimize that loan contingency.

Now, one other side note on that. Even if you are financing a property, you don’t have to put a loan contingency into your contract. Now, again, I’m not giving you legal advice here. You always want to get with your attorney before doing any of this stuff. But what I’ve seen done and what I’ve done personally many times is submitted an offer where I plan to get financing, but I’ve waived any sort of financing contingency.

Now, the only time you want to do that is if you are crystal clear and you’ve had very good conversations with the lender that you’re going to work with, knowing that they can close this deal, right? You better be sure that the property will qualify and that you have all your own personal finances in order to where you can get the deal closed with them. That’s a little riskier. It’s definitely riskier. Because once you’re past that inspection period, if you’ve got no loan contingency and you’re planning on getting financing and that financing doesn’t come through, you’re still on the hook to close the deal and you can lose your deposit or get into a lawsuit for specific performance.

Be very careful doing that. There are things that you can put into the contract to help cover yourself in that case. But just another side note, get with me. I’m happy to talk to you guys if you’re planning and making offers on properties and you want to get some more detail on any of these points.

All right, point number five, closing date. Obviously, if you make an offer and you can say, “Hey, I’m going to close in 30 days,” and the next person over makes an offer saying, “Hey, I can close it in 60 days,” guess what? The seller, most of the time, and the listing broker, they’re most of the time going to encourage the seller to go with the shorter closing period, right? Because the shorter the timeframe between going under contract and closing, the less can go wrong. The less the market can shift. The less you can have a physical problem at the property, all sorts of things. Generally, a shorter closing timeframe is better, so a closing date sooner rather than later.

However, on occasion, depending on the seller, they may actually have a preference for a long closing, okay? This, again, goes back to just building relationships with brokers and with sellers, if you’re working directly with a seller, and really getting familiar with the situation that the seller is in. Because if you understand that better, than you’re going to know how to make an offer that appeals to them more, right?

There could be a seller that for whatever reason, tax reasons or otherwise, has a preference to close in three months versus one month, in which case your offer saying, “Hey, I’m okay, waiting. I’ll close in three months,” that might be preferable to someone who’s, “Hey, I’m going to close in two weeks,” right? Again, just know how to make a strong offer in that case.

All right, next, escrow deposit. Whenever you write an offer on a property, whenever you get a contract accepted, there’s going to be something in that offer that says, “Hey, upon acceptance of this contract, I’m going to pay a good faith deposit, an escrow deposit, of X amount of dollars,” okay. Now, typically that good faith deposit is refundable during the due diligence or inspection period, and it’s generally refundable for pretty much any reason during that timeframe. After that, it becomes non-refundable with the exception of specific contingencies in the contract, right?

The bigger that initial escrow deposit, the better, right? That’s a stronger offer, even though it’s refundable during inspections. Once you get to the end of those inspections, if you’ve got a $50,000 deposit that you’re offering versus someone else who’s offering a $10,000 deposit, your offer is going to be stronger.

Now, another way to do this is to split your deposit up. You can offer a first deposit and then a second deposit. If you’re a little unsure about things, you want to make your first deposit lower during that refundable period. And then after the end of inspections, you might do a second deposit for a higher amount. What I’ve seen, for example, on maybe a $1 million purchase, you’re going to go for an all-in deposit of $50,000, but you offer $10,000 when you make the offer and then the $40,000 after inspections, okay. And then at that point, the $50,000 is non-refundable, unless there’s some other contingency in the contract that let you get that back.

All right, number seven, track record. And this is super important, right? This is something, if you’re brand new to real estate investing, you just don’t have a track record. But having a track record of executing on deals and doing what you say you’re going to do is so valuable, right? This above pretty much any of the things that I’ve told you so far will be a stronger reason for someone to accept your offer than pretty much anything else.

Now think about this. If you’re dealing one-on-one with a seller who may not be very familiar with the market, they’ve got one property, they’re not connected to the brokers in the market, your track record is going to be harder to demonstrate, right? But you can still demonstrate, “Hey, these are X, Y, and Z properties that I have purchased, and I followed through and I’ve done that.”

Okay, now if you are working with brokers in a market and those brokers become familiar with you, they start to know all the players in the game. And if you have consistently, with those brokers, followed through on what you say you’re going to do, guess what? When they go and they’re listing a property and you make an offer on it, they can go to that seller and say, “Hey, Mr. Seller, got an offer from John Smith here. I’ve closed five deals with him. He is a solid guy. I know there’s financing contingency in the offer and he’s asking for a little bit of a longer inspection period, but he has never backed out of a contract. He always gets the deal done.” Right? You have a good track record. You’re going to make your whole life easier going forward.

That brings me to the final point which is the other big thing. We talked about price, we talked about surety of closing. All of those things, points two through seven, help increase your surety of closing in the mind of the seller and the listing agent. The last thing is attitude, and this is so critically important. It kind of ties into track record.

Your reputation in this business is everything, okay. Like I said, the market is very small. Once you get into multi-family and some of the more niche investments, you’re dealing with a small community of active brokers, lenders, insurance providers. Your track record, your reputation is so incredibly valuable. It’s more valuable than anything else you have. You do not want to start things off with a bad reputation.

Now, going to attitude and how does that play into it. If you are difficult to deal with, guess what? You’re not going to get as many deals. You want to make it easy to work with you, right? I’m not saying be weak or be passive and don’t push hard for what you need to make a deal a good deal for you, but you don’t want to be a jerk. Don’t be difficult with people. Don’t be condescending. Don’t come in all arrogant like, “I’m the guy, I’m going to do this,” and then just be difficult for everyone to deal with because that just does not play out well for you in the long run.

People talk. And once you’ve kind of blown it with one group of agents, then you’re, you’re going to blow it with your chances with them on getting deals going forward. Or they may come to you as the second or third buyer in line versus the first. You want to be so easy to work with that the broker’s love working with you. And when you make an offer, they’re like, “Man, I want that guy to be behind your property because it’s going to close and he’s going to get the job done, and it’s going to be a pleasure working with him.” That’s the attitude you should try and cultivate.

I hope this was helpful. I’ll put a list together so you can just have that as a quick PDF here, downloadable at the bottom of the video. If you do some of these things when you’re submitting offers, then it’s absolutely going to increase your chances that you’re going to get offers accepted by sellers and listing brokers. All right, thanks a lot. I appreciate you staying tuned and I’ll see you on the next one.

Christopher Kennedy

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