Submitting an offer and being able to negotiate is key in today’s market. Since the Recession of 2008, much of America has been experiencing a housing recovery over the past few years, resulting in strong seller’s markets in many regions (which means there are more home buyers than sellers). In these scenarios, desirable areas experience a surge in prices that are a result of homes being bid up, rather than organic growth in property value. The lack of inventory of homes on the market means home buyers and investors are fighting over the same properties.
However, even in extremely competitive markets for buyers, with some careful strategizing, you can increase your chances of your offer being accepted. The ideal situation, of course, is to acquire the property before it even hits the market – this way you are practically guaranteeing that nobody else knows it is available for sale. However, this is not always possible.
Once a property is listed in the MLS (Multiple Listing Service), it becomes publicly searchable by any real estate agent or investor who has access to that database. It’s possible to stay up-to-date on listings, but that takes a lot of time and staring at the computer.
The main goal when making an offer on a property is to put it under contract. Since home sales typically take 30 to 45 days to close, it is not technically closed yet until money changes hands and the closing attorney records the new deed. Up until then, everything is still negotiable. Many buyers over-think the offer process, thinking it is “be all, end all” – when in reality, they are truly only risking the amount of their due diligence deposit (an amount which they themselves are deciding on) rather than the sales price of the property.
I’ll mention here that it’s important to understand the seller’s motivations, if they have any. If you’re working with a buyer’s agent (that is, a real estate agent representing you as the buyer), have them ask the listing agent (the seller’s agent) what their ideal terms are. You never know what the situation is that led them to their decision to sell. They may put priority on a quick, cash close or they would like an extra long waiting period so they can move their elderly parents into a new home. If you don’t ask, you don’t know — but tailoring the offer so it checks every item on the seller’s list of “wants” will significantly increase the chances of your offer being accepted.
If you’ve scoped out the area you want to purchase an investment property in, that definitely gives you a leg up. You can put an offer in on the property as soon as it hits the market, without waiting to see it. The due diligence period will give you plenty of time to verify everything about the property, including rent rolls and the age of major systems. While other buyers can put in backup offers after a property has gone under contract, it doesn’t always happen (and the backup offer can only be taken if your contract is no longer valid). Again, your goal is to get the property under contract in order to scare off any other potential buyers. You can always re-negotiate based on your findings later.
In markets where prices are being bid up, you may have to put a full price offer on a house. Sometimes, the opposing side (the agent representing the seller) will ask you to put down in writing that you are willing to pay that price regardless of appraisal value. However, if the opposing side doesn’t ask for that – it’s fair game.
There are always ways to negotiate down the road, even in “seller’s markets.” Perhaps your structural engineer’s inspection came back with some structural issues – it is completely fair to ask the seller to address them or offer a credit. The same goes for anything of significance that could come up in the inspection. While threatening to walk away from the deal may not present as big of a hiccup as it would in markets where buyers are more scarce, it can still be a red flag when a property falls through. Prospective buyers will wonder: “what’s wrong with it that the other buyer backed out?”