Welcome to the series of posts helping introverts with buying a home, selling a home or investing in real estate. I tend to be an introvert more than an extrovert so I thought it would be appropriate to give some advice on how introverts can succeed in real estate. My last post was on Three Online Tools Introverts Can Use When Working with a Real Estate Agent. For all the posts, go here.
For this post, we are going to be looking at the task of making an offer for a home. In reality, offers made by introverts are really no different than ones made by extroverts (at least in Texas). When it comes time to make an offer, your real estate agent will sit down with you to go over the decisions you need to make when constructing the offer. Offers are made in Texas by using the Texas Real Estate Commission’s(TREC) promulgated forms. Real estate agents are not allowed to practice law so the commission provided us all with forms developed by a team of attorneys appointed by TREC. Your agent will present you with the appropriate form depending on the property type. Within the form itself, you will have several blanks, which are the decisions you will need to make for the offer. For example, there is a blank for offer price, which is further broken down by the amount of cash down payment and the size of the mortgage loan. Your agent will go over each decision with you, explaining the different options and possible outcomes. Instead of us spending time on each issue, we are going to give three guidelines as possible strategies when making an offer on a house. You can take each one on their own merit, or mix and match them to help you come up an offer.
1. Offer more than you will settle – When it comes to making an offer on a property, you will often have the opportunity to negotiate your offer with the seller. In fact, there have been very few times in my career where an offer has been accepted as presented. You can also expect a “no thank you” if you offer is too low for the seller to even bother giving you a counter. The market tends to drive whether a seller will not counter a bad offer. I understand that during the last buyer’s market, some sellers would consider any and all options. In this tight seller’s market, you are seeing offers at asking price being turned away if the seller is looking to get a bidding war. Despite the rare exceptions, sellers like to protect their own self interest so 99% of them will negotiate an offer made on their property. With this in mind, one strategy you can take when putting together you offer is to offer lower than what you are willing to settle. For example, if you really want the property for $205K with a 10 day option and the seller paying your title insurance. You might make the initial offer at $195K with a 5 option period and you buy the title insurance. When the seller counters, you can then counter back at what you really want to offer. In other words, figure out what your final and best offer and offer lower in the initial offer.
Bonus: Don’t get too carried away with this strategy or you will have the seller just reject the offer outright. A good rule of thumb is to get within 95% of list price to start a negotiation with the seller. If you go below 90% of list price, you will probably get rejected.
2. Little things matter to a seller – When I am making offers for buyers and they offer full asking price, I am always amazed at what a seller will put in the counter. As I have already written in this post, there are many parts to an offer. Sellers will be fine with a full asking offer and probably not counter the sales price. However, some sellers will not want to pay for other items that traditional fall to the seller. For example, many sellers refuse to pay for a new survey. Surveys only cost between $400 and $600 so not a lot of money compared to the sales price. However, sellers love to see these expenses taken off their plate. With this in mind, one strategy you can employ is to take on the small things, which will make your offer more attractive to the seller. You can pay for the survey, or forego asking for a residential service agreement (home warranty). You could also not ask for closing cost assistance or even pay for the title insurance policy(although make sure to ask your agent for the cost of this as it can be expensive). The small things strategy really comes to play if you are competing with other buyers. It might come down to a buyer paying for that survey that wins out against other buyers.
Bonus: A letter to the seller is a technique many buyers are employing right now. These letters outline to the seller why they want to purchase the property and leave an impression with the seller that their home will be maintained. Be sure to speak to your agent about these letters and how you might craft one.
3. Be aggressive, but stay within your comfort zone – For most people, your home will be the biggest purchase of their lifetimes. It can also be an emotional one as you are finding the place where you plan to make some memories. You will most likely find a house that you feel is perfect for you and fall in love with it. Your gut instinct will be to tell your real estate agent that you will do whatever it takes to get the property. You might also find that after making 15 offers with no house yet that you are willing to do anything to get the next property Emotion can drive anyone to make rash decisions. For the last recommended strategy, you want to be sure to keep the aggressive frame of mind, but stay within your comfort zone when making an offer on a house. The best thing for you to do is to figure out you final and best offer. You want to do this before you start looking at homes so emotion is out of the picture and calm reasoning rules the process. Once you have the highest and best offer, you need to stick to your guns and not go beyond it. You don’t want to have regrets later on with such a large purchase.
Bonus: Once you have your best offer on the table, you might want to show it to a loved one or a close friend who are not part of the decision making process. Once it come time to make an offer, you can then call that person to make sure you do not jump off the cliff by making an offer you will regret later.