Making an Offer on Real Estate
- Adam Garrett
- Oct 12, 2023
- 16 min read
Updated: 20 hours ago
Below you'll find important matters to note regarding purchase offers in real estate, acquisitions prior to the offer, & common offer elements.
Important to Note:
Expeditious Offers
The importance of Expeditious Offers is hard to overemphasize. Those who are quick on the draw on an offer are much more likely to get a home at a better value than those who delay. That said, an offer decision is one of the most important in many buyers' lives, so having proper contingencies like a home inspection contingency is typically important to gather further evidence. Also, knowing offer elements in advance is best so that when you find the right home, you aren't scrambling to learn about the offer rather than expeditiously learning about the house before an offer.
When you've seen a home, another offer can come in, and the other buyers can ratify with the seller, with no notice whatsoever to you. It's a bad idea for the seller to do so in many cases, but it's easier on real estate agents not to share with other parties about the existence of offers, even though it's hurtful to the seller and their own commission to do so. When I represent a seller, I reach out to other interested parties after receiving an offer, at times going back months prior to interested parties, but very few real estate agents take this element of the home selling process as seriously as I do. Conversely, when I've represented a buyer, sometimes even when I share with a listing agent that we are considering an offer, the listing agent won't tell me that they have received an offer until after they tell me that they've ratified. My standard showing questions when I represent buyers include a request to the listing agent to let me know about the existence of offers prior to the seller ratifying, but often that request is ignored.
Offer Preferences
How you make an offer depends a lot on a number of variables, including but not limited to how much you want the home vs how much you want a deal, the seller, if you're also selling, the market time (including any recent past listings of the same home), the property condition, & otherwise.
Many buyers and agents will go directly to the offer 1st when going through preferences, but that's not the best practice. It's best to go through a checklist that is offer-specific for the offer type being used, goes through ways to avoid buyer's remorse of items to check before making the offer, has smart features where answering 1 question answers multiple other questions in some cases, has plenty of integrated hyperlinks for additional information outside the spreadsheet for more detail, and that has options to be more thorough or quicker. I've created such a spreadsheet for offers in SE VA.
Related:
Go Over Comparable Sales With Your Agent
Before making an offer, it's best to go over comparable sales with your agent. That can influence the price you offer substantially (i.e. low or high) & even whether or not you make an offer.
If Wanting to do a Verbal Offer
When to use a verbal offer:
1. If seeing a property within an hour of the offer deadline or there's another time constraint that would mean that a full-blown written offer wouldn't be possible
2. If making many offers on many properties
3. If making a below asking price offer wanting to appear non-committal & you wouldn't actually mind that much if you lost the house
Verbal offer elements:
1. Address:
2. Offer Price:
3. Closing Cost Assistance Requested, If Any (if you want to request one from the seller, which I don't typically recommend; foreclosures & short sales typically max at 3%)
4. Contingencies: Termite/Moisture Inspection, Home Inspection, Appraisal, Home Sale, etc.
5. Home warranty request (if you want to request one from the seller, which I don't typically recommend)
6. Closing Date (excluding Saturday/Sunday, federal holidays, and dates that your closing company is closed unless you want to pay an additional fee in some cases)
7. Funds Type
8. Additional concessions/notes
Multiple Offer Spreadsheet
One of the best ways that I like to present making an offer is by providing a multiple offer situation as well as a point-by-point comparison of strong to weak offer elements. Here is my multiple offer spreadsheet with that comparison. Ask me if you're my client for an example filled out of a multiple offer scenario.
Counteroffers
In some cases, you only get one chance to make an offer, such as many cases with HUD owned properties during the owner occupant only period before that period runs out. Sometimes a seller will get 2 offers and decide to just accept one over the other without ever issuing a counter or stimulating a bidding war. I remember one occasion where a buyer had a solid offer that was given to an individual seller, but with the terms they presented being nearly the same as another buyer, the seller accepted the one who presented the first offer. On another occasion, with 2 offers presented with one being better than the other, rather than creating a bidding war again, the better of the 2 offers was accepted. In the majority of cases though, the seller may counter or reject your offer if they don't accept it before it is ever sold to someone else, giving you an opportunity for a second offer. In some cases, a bidding war is stimulated where the highest offerer may present 3 or more total offers as the price goes up, and I have seen this happen where it goes even higher than 50% above asking price.
Different Types of Offers in SE VA
The Virginia Association of Realtors Residential Contract of Purchase are used likely >10% & <50% of the time in places like Williamsburg/James City County/Gloucester County, & used likely >50% of the time in much of SE VA outside of Hampton Roads REIN dominant territory.
The REIN Standard Purchase Agreement is used >90% of the time in Hampton Roads, though less in Williamsburg/James City County/Gloucester County than any other area of Hampton Roads.
There are many other types of offers used in SE VA, i.e. those for HUD homes that are similar throughout the US.
Acquisitions Prior to Offer:
Get Updated Proof of Funds/Preapproval
Make sure that your preapproval/proof of funds matches or exceeds (ideally exceeding) the offer price (escalation clause if applicable) if possible (though max can work as well though less ideal unless your escalation clause is up to your preapproved amount) & is less than 30 days old & that I have a copy to submit with the offer. If using a mortgage, ideally it's already been manually underwritten to strengthen your offer. Ideally, you should also get an estimate of closing costs/prepaids required for the purchase.
If purchasing a condo, be sure to ask your lender about the property prior to offer, especially if purchasing with a conventional loan. Unlike FHA & VA loans, there isn't a public online portal that states whether Fannie Mae or Freddie Mac ("conforming") conventional loans will be an option.
Related:
Earnest Money Deposit
Earnest money deposits are an important element of most real estate contracts. I've never done a transaction on the buy side or list side that didn't include one. Strong earnest money deposits have helped my buyers to win offers at times above competing offers. I've never had a buyer who lost any portion of an EMD, but I've had at least a few cases where sellers I represented received the buyer's EMD after the buyer was found to be in breach of contract.
More Details:
Questions for Listing Agent or Research
Sometimes not asking enough questions before an offer can later derail a transaction, costing you time and money, especially if you fund a home inspection & appraisal.
In the absence of a home inspection, this information determined by your buyer's agent, or present in the listing agent remarks or public remarks, questions to consider include:
Roof age & # of years rated
HVAC/AC/Furnace age
If a Home Owners Association or condo association is present & any of the following would matter to you:
Rental caps (these can even occur with single-family detached homes, though not typical in those cases)
Rules on pets if you have or would consider pets
Rules on what you can do at the property
Rules on renting out rooms
Rules on short-term rentals
Agency approval details (especially with condos)
Some questions I'm not listing above because I ask them by default if they're not present elsewhere prior to showing, i.e. flood insurance costs if a home is in an AE flood zone.
There is a danger in asking too many questions & scaring off a seller by the volume of questions (even very legitimate questions). While you might think that questions like the roof age should be asked before visiting properties, or that these questions should always be asked before making an offer, buyers' agents who ask as many questions as I do to help protect buyers need to be sure that we are selective about the questions that we ask.
I've encountered 1 scenario where a listing agent stated that the seller accepted an inferior offer because we "asked too many questions". The 1 question he cited as an example was a question that was asked to make the offer more compelling to the seller by getting their preferences in advance. You might think that is an unreasonable response, & I would completely agree.
Most buyers would have a hard time believing how often I have to repeat certain questions I ask when requesting an initial showing because listing agents tend to be lackadaisical about responding directly to certain questions that aren't typically asked no matter how important those questions are. An example would be my default to request of if pictures/video are possible for personal reference during a showing. While you would probably think it's ridiculous, as I do, I even recall one occasion where my repetition of unanswered questions led one listing agent to ask me to not show his properties again. Because it was a private conversation that the seller wasn't included on, the listing agent was able to get away with such a request. The sad thing is that it was a relatively high-volume agent, who you would think would be more reasonable than most & cognizant of what's in the best interest of sellers & what's not. Sadly I believe it was one of the many cases where a listing agent does something or says something out of convenience being more important than doing what's in the best interests of the sellers they represent. It was inconvenient to have to say more than that the property was available.
Additional Research
Additional research includes:
Crime rates (your agent could be accused of breaking the law if he points this out at 1 place and not at another)
School districts (your agent could be accused of breaking the law if he points this out at 1 place and not at another)
Factors to Consider to Help Determine Where to Find Your New Home
Master Spreadsheet for Prospective Home Purchase Considerations
Check to see if the property is in a crash zone or noise zone, knowing that local military bases (i.e. in Hampton, Chesapeake, Virginia Beach, & Norfolk) tend to generate significantly more noise than local airports but that local airports can generate noise as well. Note as well that the closer the proximity to the noise zone (even if in an adjacent city), the higher the noise level, even if not in a noise zone, and that even distant properties can experience noise from military aircraft in Hampton Roads.
Review the offer template itself (there may be some variance as they change over time). Whether for now or future properties, sometimes there are unique offer forms required, such as for HUD & VA Foreclosures.
Check to see if there were any previous listings, monitoring price & potential contracts. Even if it states something like, "Contract fell through with no fault to Seller" ask what happened. Sometimes that's essentially a false statement & in my experience I once saw that statement after my buyer pulled out due to the home inspection.
Check the tax records for the property, looking for any discrepancies between the listing and the tax records, such as square footage & even year built. Sometimes an agent's reported sq ft is hundreds of sq ft inflated, while in some cases tax records are wrong, but it's important to know discrepancies to get to the bottom of things. On one occasion I've encountered a property listed as 8 years old, though the first story was over 50 years old, with no disclosure.
Be familiar with the public remarks from the listing, which may stimulate some additional research.
Check with your insurance company about the rate range there. 2 identically priced homes can have very different rates, especially if there have been 2 or more claims in the last 5 years at 1 of those. Also, if there was a way to find out that a home had been robbed or otherwise damaged in the past 5 years due to a claim on it, wouldn't you want to know?
Make sure that, on the map & aerial view (you can switch between map view and satellite view on the top left once on the map) of a property on Matrix, you don't see any encroachment. You can check further by the 3d view on Google Maps (often unavailable in low population density areas) & previous satellite images from Google Earth. If you see encroachment, check for grounds for adverse possession.
If using a mortgage loan, be familiar with at least the basic underwriting guidelines for the loan type you'll be using. Mortgage loan requirements by loan type:
If Also Selling w/ Home Sale Contingency
If selling as well w/ a home sale contingency, it's best to get items like:
Your contract with a buyer, if applicable, as well as any documented contingencies removed
Especially if you don't have a contract with a buyer, information that links you to the property (such as tax records in your name for the property), pre-listing home inspection after you've done repairs and the inspector has revised the inspection accordingly, pre-listing termite/moisture inspection, existing mortgage/HELOC/other lien information if making a profit & using that profit towards the purchase, & pre-listing appraisal or comparative market analysis
If unlisted, the professional photos, Matterport virtual tour, aerials, list of MLS where the home will be placed, information on the agent representing you, etc.
Documentation Linking You to Any Other Purchase Entity
If you'll be using a business, trust, 501-C3, or other entity, be sure to send to your buyer's agent any documentation regarding that.
Offer Elements Beyond Acquisitions
Repairs Visible Prior to Offer:
If there are any repairs/modifications/updates that you want the seller to perform that you notice prior to making an offer, it can be good to include those in an offer, especially if the absence of those repairs by the seller would rule out the property for you. There are times when a seller has said that they would not do certain things that came up in the home inspection because the seller states that they should have been obvious prior to the home inspection prior to making the offer. That said, keep in mind that a buyer that asks for repairs upfront is typically inherently weaker than another buyer's offer, all other factors the same, due to a lower net.
Appraisal
The buyer is protected to some degree in the cases of most mortgage loans (all under 20% down) and all cash offers contingent on appraisal. If the buyer makes an offer for $300k, and the appraiser says it is worth $295k, a buyer with a loan can sometimes provide their own funds to split the difference, or can sometimes get the seller to come down. Sometimes they meet in the middle. Sometimes the seller will come down in price, but request the removal of buyer concessions.
With a VA loan, if the appraisal comes underneath the contract price, the seller should know that anyone with a VA loan will be impacted by that one appraisal for months. In the case of a conventional loan, on the other hand, the seller has more recourse to put the property back on the market for another buyer and hope that someone gets it and that the appraiser is more forgiving of the sales price.
While I wish that this wasn't the case, the appraiser sees the listing price, and is often biased to make the appraised value equal to or greater than that amount in order to not ruffle any feathers. Agents, buyers, and sellers alike can get quite heated on the issue.
An appraisal guarantee is sometimes included in offers, especially in competitive offer scenarios. That is where a buyer states that they have cash to pay above the appraised price. In some cases, an offer with a higher appraisal guarantee than another offer that has a higher offer price will win.
I routinely use escalation clauses to help my buyers win. With an escalation clause, you make an offer at one price, then state the max that you are willing to go that is triggered by other offers, with you having an opportunity to receive a copy of the other offer prior to increasing your offer to reflect the escalation clause terms. I typically recommend 1% above the next highest offer, but it highly depends on the terms of the offer. A cash non-contingent buyer might be able to get away with $1k, while a home sale contingent VA buyer might be better off with 3% above the next highest offer. While escalation clauses are prohibited for some properties (i.e. HUD homes), typically they're allowed to be used.
Letters to the Seller
These are often used to help buyers win, and I've seen where monetarily worse buyers I represented won, with the letter to the seller being the primary stated reason why. That said, it's also very easy to be illegal without knowing it, and likely the majority of letters to the seller include illegal elements.
Atypical Elements to Help You Win
There are a number of ways that I like to help my buyers get further along that are not usually included in offers, like an email template that I've developed over time to make things easier on the listing agent (& doing things helpful to the listing agent can help give them a positive impression). I've been told by a competing agent that my offer presentation is excellent. If a buyer has a high volume of cash or is providing an above appraisal guarantee I like to include proof of funds to back that up to show that the buyer is in a strong position. If the buyer has a strong credit score, I like to share it, and if the buyer has a copy of the lender pulled credit score and has strong credit, I like to include it in the documents.
Home Inspections
Typically buyers acquire a home inspection following contract ratification. Some buyers perform a home inspection before presenting an offer. Other buyers don't do a home inspection. The most common method is to do a home inspection after 1 or 2 showings. I would typically recommend a pre-offer home inspection rather than no inspection. A pre-offer inspection is especially a good idea if there is an offer deadline with sufficient time to see a property once and go back with an inspector and a multiple offer situation. Waiving the inspection following a pre-offer inspection can help you beat out other buyers for less money than they're offering at times.
If not performing a home inspection, I recommend that buyers/agents check all system ages, check the roof of a home with a tall ladder or drone, and go into the crawlspace and attic as far as they can. Most buyer's agents won't do that & don't have the equipment (i.e. most don't carry a ladder, long pole w/ camera, or drone & you need to be certified to fly a drone commercially) to even if they wanted to, but I can if you give me advanced notice (i.e. for having clothing for a crawlspace, requesting permission for my drone, and acquiring FAA authorization in base locations where LAANC instant approval isn't possible).
Related:
Termite/Moisture Inspections
Locations and contracts vary regarding termite/moisture inspections, but generally speaking, mortgage loans will require that you have a clear "termite" (wood-destroying insect) letter prior to closing. The REIN Standard Purchase Agreement, the most common contract in Hampton Roads, also includes a clear "moisture" (wood destroying organism) inspection provision, while the VAR Contract of Purchase does not by default. When not required by a mortgage, i.e. those purchasing in cash, there's also the option to strike these provisions from the offer, but that's not typically done.
Related:
Other Inspections
Here are some examples:
Septic inspections (required for mortgage w property reliant on septic)
Well inspections - water quality (required for mortgage w property reliant on well for drinking water)
Well inspections (water quantity)
Foundation inspections
Electrician inspections
Radon inspections (especially W of Richmond)
EIFS inspections
Contracts vary regarding what falls under the home inspection.
The Virginia Association of Realtors contracts, used primarily outside of Hampton Roads in SE VA, allow the buyer to not state all of the inspections they have planned as long as they fall within the inspection window.
With the REIN Standard Purchase Agreement, used >90% of the time in Hampton Roads, if any inspections are planned, they need to be included in the "Property Inspection Contingency Removal Addendum" or need to be a result of a buyer's home inspection's request for further inspection by a specialized pro like a plumber or foundation expert.
Other Contingencies
i.e. home sale contingency (for buyer)
home purchase contingency (for seller)
Seller Possession Agreements
These can sometimes edge over the competition to win offers, especially if a seller is selling their home and using the proceeds to purchase another home while trying to avoid a short term rental. Here are more details.
Buyer Possession Agreements
Sometimes these can be helpful for buyers in their transition to a new home to avoid a short term rental if they are tight on time, especially if a buyer is using the proceeds of a sale to purchase a home. Here are more details.
Offer Deadline
While VAR contracts (used in SE VA primarily outside of Hampton Roads) have a clause for an offer deadline, REIN contracts do not. That said, if wanting to include an offer deadline, it can be added to other provisions.
Closing Date
Typically contracts have around a 30 day closing, though sometimes they're able to squeeze further, i.e. to 25 days, especially if they had manual underwriting prior to offer, rely on a pre-listing home inspection, & order the appraisal on the date of contract ratification. Cash buyers will sometimes push for an earlier date, even 2 weeks after the offer is made, because they don't need as much time to wait on appraisal results and can select an appraiser that guarantees results by a certain time as part of their selection process if opting for an appraisal contingent offer. While cash & mortgage buyers are able to do more extended closings as well, unless the seller prefers a delayed closing, it's typically considered a better offer if a reasonable earlier closing is possible.
Closing Cost Assistance
Sometimes buyers will request closing cost assistance from the seller. It makes the offer inherently weaker from the seller's eyes, even if the same amount of closing costs requested is equal to the amount above the list price that is offered.
Likewise, but less often, buyers can offer closing cost assistance to the seller.
Many More Offer Elements
There are many additional elements that may be part of an offer, from surveys to home owner's association document requests. I have an offer spreadsheet that goes over many of these. Once we're under buyer brokerage, feel free to ask me if you'd like to get a copy. It's ideal to go through it prior to your first showing if you are not in a rush to see properties.
Related:
コメント