4 Tips For Making Strong Offers On REI Deals
There are really four things to make an offer strong and the stronger the offer, the better the deal. So here are the four things.
A “cash” offer is much stronger than an offer contingent upon financing (qualifying for a loan). Cash means you have the funds liquid and are not obtaining financing to purchase the property. A financing contingency means that if the buyer’s financing falls through, he is able to back out of the deal. It also takes longer to close, require an appraisal and there are a number of things that could go wrong. Think about it. If the seller’s looking at two offers with the same offer price and one is cash and the other is with financing, which one is the better offer?
Obviously the cash offer because it’s more certain to go through. Cash is huge. When making cash offers a “proof of funds” is required, showing that you have the funds liquid in the amount of the offer price. A checking or savings bank statement is sufficient proof of funds. Click here to find out how you can use my proof of funds and become an all-cash buyer.
2). Higher Earnest Money Deposit:
Whenever you get a property under contract to purchase, the seller usually requires some form of “good faith deposit” often called an earnest money deposit (EMD). The EMD is your good faith that you are going to fulfill your end of the contract. Once all the contingencies are met, if you do not close on the purchase, you forfeit your EMD. I suggest you only give the EMD check after you’ve got a fully executed contract.
Some agents want to have that EMD check to submit with the offer. If that’s the case, give them a photocopy of an EMD check, but not the actual check. They don’t actually get the real check until the offer’s accepted. Once the offer is accepted, go ahead and give the actual EMD check, which is held in escrow and applied towards the purchase at the closing. Never let the seller hold the EMD. It should either be placed in an escrow account with the real estate agent (usually the listing agent) or closing agent/attorney.
Here’s how the EMD affects the strength of your offer. The higher the EMD, the stronger the offer. Typically, $500 to $1,000 is all that is needed for an EMD. However, all things being equal, if you have a higher EMD, let’s say $5,000–$20,000, your offer will be much stronger than an equal offer with only a $1,000 EMD. By offering a higher EMD, what are you saying to the seller is that you are very confident and certain on being able to close this deal.
3). Waive Inspection Contingency:
It is common for a buyer to ask for a 3–10 day inspection. If the inspection comes back unsatisfactory during the allotted time, then you can back out of the deal and get your EMD back and be released from the contract. Another way to strengthen your offer is to waive your inspection contingency. Be very careful; don’t wave your inspection contingency on any sight-unseen offers.
If you’ve looked at the property and feel confident in your numbers, and you’re looking to strengthen your offer, you could waive the inspection. Again, you are waiving your chance that if something unforeseen comes up during your due diligence and you don’t close for whatever reason, you could lose your EMD.
4). Close Quickly:
The quicker you can close, the stronger your offer. Be careful if you’re using private or hard money because you need to have enough time for the lender to be prepared. If you’re using all cash and you can be ready to close, you could state on the offer that you can close in 5 to 10 days. Typically, it takes a couple weeks to order title work and prepare for the closing anyways so often I’ll put “close quickly” or “close as soon as ready”.
Example: I once bought a property for $107,000. My offer was:
- $10,000 EMD
- Close ASAP and
- No inspection contingency
The listing agent told me there were other offers submitted that were for much higher than my offer. One was $20,000 higher but it had the following stipulations:
- Contingent on loan approval
- $1,000 EMD
- 60 days to close
- 7-day inspection contingency
I got the deal because my terms were so much stronger.
So a low offer can be the strongest offer and in my case get you a wholesale or flip deal under your belt for future real estate investing profits.