Buyers Guide

3 Secrets to Getting Your Offer Accepted TodayBuyers-Guide:Level-Up-Group:Women-Pier

Have you written multiple offers on properties and been beaten each time?  Or have you heard horror stories from your friends’ home buying experience and want to achieve better results?

Buying your home in SF takes financial discipline, emotional intelligence, and a keen insight into human behavior to maximize your leverage in each unique buyer/seller relationship.

I’ve helped hundreds of people get their offers accepted in San Francisco and Oakland.  We haven’t always been the highest price, either.  As much as buying Real Estate seems like just a financial transaction, it’s also a very personal one for both buyer and seller.

And in San Francisco, it’s exceptionally competitive.  To win, you need to remove all reasons that the seller may consider another offer over yours.

So what’s the secret?

The winning offer in a competitive situation will be strong in three areas:  price, terms and relationship.

Let’s dig in to the three secrets to getting your offer accepted.

 

1) Price

Buyers-Guide:Level-Up-Group:Happy-man You need to be in the top two

Price is the first thing the seller looks at, but not the only thing.  You generally need to be in the top two, maybe top three, to be considered in the running (there are lots of exceptions of course, but I’ve had many offers accepted where my client was the second highest offer, but we had better terms and knew how to leverage the power of relationships - more on that later).

Give yourself room to compete

The offer price conversation really begins before you even start looking at properties.  In a competitive market like San Francisco and the East Bay, it’s more frustrating than productive to look at properties that are at your maximum price range.  You need to examine what the market is doing and plan accordingly.   If offers are averaging 10% over for example, make sure you’re looking at properties that are about 10-15% BELOW your max.  You want some room to compete.  Hope is not a winning strategy.

Be aggressive

If you really want a property in an appreciating, competitive San Francisco market, you need to be aggressive with your offer.  Trust in the power of data.  Be sure you have comparable sales data, as well as recent market insights from your agent, plus an analysis of what properties have sold for over (or under list price) recently.

Assess how much competition you’re facing

Be sure your agent is speaking with the listing agent multiple times before submitting a contract.  Negotiations start at the first “hello”.  You want to find out how many disclosures are out (as a rule of thumb in SF, you can estimate that the seller will receive about 1 offer for every 3 disclosures out – give or take), what the buyer community interest has been, how many people have come to the open houses, has anyone committed to submitting an offer, and if there are any offers in hand.

Ask your agent to recommend a price and support that recommendation with facts, but you should always make the final decision.  There is no magic formula – its as much art as it is science, but all of our due diligence up to this point should give us some insight that will help in a meaningful way.

 

2) Terms

Terms include the amount of time to close and the number of contingencies (inspection, appraisal, finance are the most common).   From the seller’s perspective, the more contingencies and the greater amount of time requested to close, the greater the risk that the buyer will find some reason to walk away.

Use contingencies wiselyBuyers-Guide:Level-Up-Group:Trolley

A contingency is a way for the buyer to back out of a deal.  They are the “strings attached” to the offer.  Buyers love contingencies - sellers hate them.

Contingencies safeguard the buyer and are very important.  In a hyper-competitive market, there are ways to keep the same safeguards without throwing caution to the wind or putting your deposit money at risk.

Terms are broken down into three main categories:  Financing, inspections and close of escrow.

Financing

Finance terms include finance contingency period, down payment amount, and appraisal contingency period.

Finance Contingency

Finance contingencies are for borrowers with uncertain ability to get a loan

Finance contingencies give the buyer a way out of the deal if they are unable to get a loan for some reason (such as if a buyer loses his/her job during escrow or something ugly is revealed about the property or the borrower that makes the purchase unlendable).

Remove uncertainty by getting pre-underwritten

Getting pre-underwritten (some lenders call it tbd approval or fully pre-approved) is a way to be more aggressive with your financing terms so you may not need a finance contingency, or can have a very quick one.

Finance contingencies are made up of four parts:  Amount financed, maximum interest rate, duration and points.  Think of these are buffers that define what the buyer is willing to pay for the property.  If any of these are exceeded, the buyer can get out of the contract.  I advise my buyers to write in the interest rate they were quoted by their lender.  Provided your rate is reasonable relative to the current interest rate environment, most sellers will not scrutinize it too much.

In practice, most lenders will lock in your rate as soon as you get into contract.  That rate will not change during a typical 30 day max contract period.  Check with your lender for their specific policies.

Down Payment

Buyers-Guide:Level-Up-Group:Fathers Higher down payment amounts increase the seller’s confidence in your ability to close the deal

The more cash the buyer brings to the table, the stronger the offer is generally perceived to be.  An all cash buyer doesn’t have any finance contingencies – all they have to do is go to their bank account and write a check (pretty much).  This is very low risk to the seller.

25% down payment is ideal

If all cash just isn’t an option, then 25% down payment is considered good.  More is better, but 25% is still strong.  This gives the seller some assurance that if the appraisal comes back lower than the offer price, the buyer can make up some or all of the difference.

20% down is ok, but doesn’t leave much wiggle room if the appraisal becomes an issue.

Less than 20% down in a competitive market is generally considered a weak offer.  FHA loans that require 3% down will not have great properties to choose from – you will find yourself at a competitive disadvantage most of the time.

Appraisal Contingency

Appraisal contingencies were designed for all cash buyers

Appraisal Contingencies were designed to give all cash buyers an out if the appraiser valued the property low.  An appraiser gives the lender a neutral third party’s opinion of the value of the property.  90% of the time (approximately), the appraisal matches the offer exactly; but 10% of the time, particularly in a rapidly appreciating neighborhood, it comes in less than the offer price.

Higher down payments gives you more room to navigate discrepancies in the appraised value.

An appraisal contingency is somewhat redundant if a property is being financed.  Removing it from financed offers can be a way to strengthen your offer, without giving up a whole lot.  If the property does not appraise, the buyer will most likely be unable to get their property financed, allowing them to exit based on the finance condition and still get their 3% back.

If the property doesn’t appraise, you have to make up the differenceBuyers-Guide:Level-Up-Group:Windmill

A lender lends based on the appraised value of the property, or the offer price, whichever is less.  For example, if you are getting an 80% loan on a $1M property ($800k loan, $200k down payment), and it appraises low at $950k, the lender will only lend you 80% of $950k ($760k), and you’ll have to make up the difference in your down payment ($240k instead of $200k).  In reality, you may be able to finance the $40k difference as well - that’s a better discussion to have with your lender than your Realtor.

Inspections

Inspection contingencies allow you to cancel for any reason

The inspection contingency (or sometimes called Home or Contractor’s Inspection) is the strongest contingency in the contract.  It basically says that the buyer may cancel the contract for any reason within the time period stated, provided they are acting in good faith.  It’s meant to be based on issues discovered during inspections, but it could also be used if the buyer changes their mind or gets cold feet.

The inspection period can be used for any inspection, including pest, foundation, roof, mold, Feng Shui, or whatever else the buyer wants to assess about the property.

Many sellers provide inspections to encourage non-continent offers

Many sellers provide inspections for buyers in their disclosure packages.  If this has been done, it would probably be disadvantages to write in more a contingency period, unless there is a compelling reason to do so.  Inspectors are licensed by the state and are independent of the seller or their agents, so you can trust the report is not biased (be sure to verify that the inspector is actually licensed).

Buyers-Guide:Level-Up-Group:Ashbury-Haight Sellers don’t like inspection contingencies

Inspection contingencies are a very powerful buyer safeguard, but because it’s so open ended, most sellers will prefer offers without inspection contingencies, or ones with very short durations.

From the seller’s perspective, they want a buyer that is committed to going thru with the purchase.  If a buyer backs out, the seller has to start over marketing the property.  If it has been off the market for a few weeks, it becomes a nightmare for the seller and the listing agent.  The pool of eager buyers has moved on, the property has a stigma now (deservedly or not) and the momentum has disappeared.

Consider a pre-inspection to be more competitive

For properties that a client is deadly serious about, I recommend we conduct a pre-inspection if the seller allows it.  This gives my client an opportunity to inspect the entire property with a qualified inspector and get all of their questions answered before we write an offer.  Then we can write our contract with no inspection contingency.  This is very powerful for the seller – they now have a buyer who is very committed to closing the transaction.  The downside is the buyer has to pay between $500-$1,000 to have the inspection done, without any guarantees that their offer will be accepted.

Make your inspection periods quick

If a pre-inspection is not possible, schedule an inspector before you submit the offer.  If we know the offer date is Tuesday, schedule the inspector for Wednesday or Thursday and write the deadline for removing the contingency as the next day (that gives you time to receive and review the report).    A few days is not too bad – the seller probably has a backup offer in the waiting, or at least the other potential buyers haven’t lost interest  in the place after only a few days.

Close of Escrow

Faster is better

Most sellers place some value on a speedy close.  In fact, many sellers have been in the process of “selling” their home for several months before they even came to market.  Interviewing agents, conducting inspections, relocating their household goods, cleaning, staging, and taking photographs can be a lot of work before even the first open house!

Generally speaking, the faster you can close, the better.  Sellers want to get paid quickly, and so do their agents!  There are fewer things that can go wrong if there’s less time for Murphy’s law to kick in.

Two weeks is strong

A 14 day escrow is considered great.  21 days has become the new standard.  25 days or 30 days is not particularly competitive.  Ultra fast is not always better, tho either.  I’ve been in deals with a 10 day escrow, and although it looks good on paper, everything has to work perfectly for a 10 day escrow to go smoothly - more often they’re stressful, hectic and everyone feels rushed - which is not a great position to be in for one of the largest purchases of your life.  It takes about two weeks to do everything properly, in my experience.

Speed of close is one of the weaker leverage points compared to price and contingencies.  If your offer is strong on those points, then a 21 or even 25 day close is probably not going to get you kicked out of contention.

 

3) Relationships

I used to think the saying “Real Estate is all about relationships” was a bit cliche, but I’ve since become keenly aware that this is exceptionally true.

Buyers-Guide:Level-Up-Group:Kissing-Couple

It pays to be nice

I have had dozens of offers accepted from buyers where we didn’t necessarily have the best price, but we had excellent terms and had taken the time to develop and nurture a relationship with the seller and the listing agent.

My job as your agent is to sell your financial strength, your seriousness and your commitment to follow thru on the deal.  I paint a picture that you are the absolute best possible buyer for this property.

Be memorable

But you have a critical role in developing a relationship with the listing agent as well.  If you really like a property, I encourage you to attend multiple open houses and introduce yourself to the listing agent - make sure they know your name and that you’re working with me.  This makes a big difference when I’m presenting your offer - the agent will remember you and your connection to me and will be able to tell the seller “I met them, they were very sweet and really loved xyz about the property”.  That validation is GOLD.

Most sellers want to sell their home to someone worthy and deserving of the property they’ve spent a chunk of their life in.  They’ve created significant memories in their house and want to feel that the person they are selling to will appreciate it as they have.

Write a heartwarming letter

I encourage all of my buyers to write a letter to the seller and include a photo of their family (especially with pets and/or kids).  This makes an emotional connection between the buyer and the seller and personalizes the offer in a way that no contract could ever do.

Work with a reputable, local lender

The strength and reputation of the lender is important as well.  San Francisco is notoriously complicated, such that not all lenders understand the way things work here.  Using out of town lenders raises a red flag with San Francisco sellers.  We want to remove all possible reasons to reject our contract – we’re serious, remember.

The secrets are out

Buying a home in San Francisco is not always a simple process, but with the right strategy, which includes the winning price, excellent terms and leveraging your relationships, it’s entirely possible.

For a free, no obligation consultation on how to apply these strategies to make your home buying process successful, email michael@michaelminson.com or call 415.606.2625.

 

Quotes

• As a buyer, the Bay Area housing market is a tough race, and Michael was thoughtful, strategic, and helped us make a winning bid on our first bid. You want a shrewd agent as a buyer, and Michael goes above and beyond. - Sam and Sean, 2014 Yelp

 

• Michael is an expert on the “hard skills” of a real estate deal – knowing how much to offer without going overboard, depending on neighborhoods and trends, knowing how to structure an offer so that it is attractive to sellers. And his recommendations are always backed up by hard data.

More importantly, and what I think ultimately landed us our new home, is that Michael has incredible “soft skills.” He knows everyone, and everyone wants to work with him. We were so lucky that he had a great relationship with the sellers’ agents in our deal, which I think facilitated everyone’s desire to work together and get the sale done. It was a pleasure from start to finish and I am absolutely certain that we would not have survived this entire process with our sanity intact if it weren’t for Michael Minson. Thanks a million Michael”!! – Heidi and Micah (2014 Yelp).

 

• Michael’s tenaciousness and initiative made this possible.  He focused on the issue most important to the seller, which was time vs. selling price at that point, and connected us with a bank lender and title company where we could get our loan expedited in two weeks.  He stayed on top of the whole process to make sure it went smoothly, which it did.

 

• My partner and I recently selected Michael as our realtor in the home search adventure.  I must say, the process was extremely painless.  Michael presented us with a fool-proof strategy that ultimately resulted in our dream home being sold to us!

It’s all how one presents oneself, and in this day and age, the strategy to do so only comes along when you are coupled with a real estate agent who is completely engaged with the client, knows the client’s limits and expectations,and has a constant honest communication line with the client. - Justin K (2014, Yelp)

 

• He helped us negotiate better terms, move the closing process along faster, and put us in touch with some great vendors to help us complete our new home. - Neesha and Tarun, 2014 Yelp