Some Sellers are so eager to be rid of their property, or so ignorant of its value, that they put a sign out in the yard asking far less than the real worth of the property. In this type of situation, several offers WILL rush in. Many will be from investors, some from people looking for a personal home.
Your offer must be written and constructed in such a way that it will be accepted. By carefully writing your offer, and thinking about how it will be perceived by your buyer, you can often end up with the property at the end of the day.
Typically, if the property's asking price is well under the true value in its present condition, ($25,000 for me), you will want to make a full price offer to lock it up. This is especially true if there is likely to be other bidding or offers on the property. What I do now is offer $1000 more than the asking price. That way I beat out any other full price offers. Most people just will not bid over the asking price. I don't care what anyone is asking, only what I am paying. I'll be top dog on price.
I have found in my experience that most sellers don't want to bid people against each other. They do on occasion, and I've been caught in a bidding war, but usually they just take the best offer and end the proceedings. Remember that sellers are not comfortable marketing their property, and are eager to get it over with.
Closing Costs: If I think that there may be competition for the property, I put on the contract that I will pay all closing costs. After the dust settles and they are contractually bound to do business with me, I can go back to the seller and say that my mortgage broker suggested that I finance some of the closing costs into the price. We would simply attach an agreement to the contract raising the purchase price by the amount of the anticipated closing costs.
Note that this makes no difference to the seller's taxable gain, nor does it affect the size of the check he'll get at closing. I've only had ONE seller balk at this. That's o.k. 99.9% of sellers have no problem with this. (IMPORTANT – you will want to tell your mortgage broker what you are doing, because the appraisal will need to come in higher than the original contract price to cover these closing costs. Appraisals generally come in for the exact amount of the purchase price, so be sure to warn your lender, who will order the appraisal.) This will also make your loan a bit larger and increase your monthly payment by a few dollars each month.
I almost always agree to take the property “as is.” I go further than this though. On the special stipulations page of the contract, which is the blank area at the end where the parties can write in any additional terms that they choose, I state: “Buyer is purchasing the property as is. This means that Buyer will not ask Seller to make any repairs to the property or expend any money on fixing any items on the property.” My offer thus contains a real benefit for the seller. Of course, we still have to protect ourselves in case something is really wrong with the house.
I put in another sentence that says: “Buyer will have the right to inspect the property for 4 days. If this inspection is not satisfactory to Buyer, he may invalidate the contract and receive a refund of earnest money.” This gives us an “out” in case the house is about to collapse. If it is a GREAT deal and you are fairly confident that no inspection items could make you want to turn the deal away, write up the contract so that they can keep the earnest money if you inspect and have to cancel the contract.
Some people feel a little nervous about making an offer to buy something “as is.” Your seller will love it, and it will make you seem easy to deal with. I purchased a home in December of 1999 that I used the above language in the contract. We got the deal. However, on inspection, I found that there were about $9,000 worth of serious repairs that I hadn't anticipated. Did I walk away? No Way.
I went back to the seller and explained in writing (less confrontational) that I had anticipated making $5,000 in repairs. Those repairs were new carpet, fixing the roof, painting, and updating the kitchen and the bathroom. However, I noted that there were significant structural repairs that needed to be repaired under the house. I noted that these were not mentioned in the seller's disclosure statement, so I had no way to know of them when I made the offer. (I also noted that I was sure that he didn't know about them either, as few people go into their crawl space. You don't want to accuse the seller of being a liar).
I continued my letter by stating that these repairs would have to be done before the house could be sold to ANYONE. I reminded him that I had my own carpenter that would make these repairs for me cheaper than any retail structural repair company. I suggested that he credit me with $6,000 at closing to cover the repairs. He agreed to $4,000, which is what it cost me to actually do the repairs, and the deal closed on schedule.
You can always go back to the plate and negotiate. I try not to if the repairs are within reason. As long as you protect yourself, you have nothing to worry about. Homeowners don't want to make repairs. By stating that I will not ask for repairs, I typically beat out any other contract with an equal or lower sales price that includes a request for repairs. (This includes all of the owner-occupant contracts, because owner-occupants ALWAYS ask for repairs). I might even beat out a contract offering slightly more money.
Closing Date & How You Pay
If you are paying cash, or able to pay cash, state that you are paying with cash on the contract. Put a quicker closing date on it.
If you are getting a loan, remember that most loans can now be turned around in 2 weeks, so if your mortgage broker thinks he can do it, put down that the closing will be in 3 weeks to give yourself a little leeway. If you can close quicker than your competitors, this may land you the deal. Quick closings are most effective on vacant properties, and less effective on occupied properties. (People get nervous when they think of having to move everything in 2 weeks). To get around this problem on occupied properties, I always tell the seller's agent that we can close quickly, but that the seller can have as much extra time in the house as they need (2 weeks or so) to move.
Other tricks are to include a copy of my bank statement (with account numbers blacked out!) showing enough cash to buy the property. If I am getting a loan, I attach a letter from my mortgage broker saying I am pre-approved for an investor loan. Although I do not do this, and do not recommend that people do this, I know that many investors in my area offer to close with all cash, with no financing contingency, even if they have no cash and plan to obtain a loan.
Form Of Offer
I put my offer on the standard Georgia Realtor Contract form. No exceptions. No junky seminar contracts. You want to look professional, and also like you're not trying to pull the wool over anyone's eyes with a contract that has numerous provisions that are slanted toward the buyer. You always want to be and appear fair. This brings me to an important issue that I receive questions about from prospective students:
“Do you include contract forms (offer forms) for us to use in your course?” The answer is ABSOLUTELY NOT! Believe me that it would be easy to draft 30 pages of contract forms to use in different situations. But, if I did so it would be doing you no favors.
If you are presenting an offer to an agent, they will basically require your offer to be written on the standard form that has been adopted by the realtors of your state. There are several reasons for this, but the primary one is so that they understand all the provisions of the contract themselves since they have been trained on the legalities of that contract. These standard contracts have a great deal of language that protects the agents and brokers from litigation, and their commissions. They do not want to deal with a contract that does not offer them this high level of liability and monetary protection. Additionally, if there are any other offers on the property, they can be more easily compared if they are written on the same form.
They should submit whatever you give them, but the reality is that they will often try to meet with you to rewrite the contract on the standard form. Realtors are busy, and they may not be able to meet with you right away, or redo the contract by fax. If another offer comes in, which it surely will if the property is well below market value, your offer may never be submitted. Or, they may counter your offer with the requirement that your offer be on the standard contract. Another offer may creep in before this can be executed. This business is often a race. Any delay can cost you tens of thousands of dollars.
The realtors have a great deal of influence and say in determining which contract is accepted. They are out for their own commission, and want the contract that stands the best chance of closing to be accepted. Using a non-standard contract makes you look like a seminar graduate who probably doesn't have the experience or ability to close the deal. Using the standard contract makes you look like a pro. Realtors know that the pros close.
Even if no realtor is involved, another reason not to use these contracts is that every seller seems to have a lawyer or real estate agent at their church or neighborhood who has agreed to review any contract that is submitted to them. If you submit a contract that is not the standard realtor contract, written with provisions that favor you, the friend will redraft the contract, or tell the seller that you are a shady character trying to sneak something past them. If a clean contract comes in with better language in the meantime, you may be out of luck again. When I show up with my standard contract, they may not even show it to the friend, or even read it! I just explain that I am not a realtor, but that I like to use this form because it is evenly balanced between the parties. Many people have seen this contract before, or they trust that it is a fair document, which it is.
The above tips should give you a leg up on getting your offers accepted. Best of luck!