Buyer’s Corner: How to Increase the Attractiveness of your Real Estate Purchase Offer in a Seller’s Market

A seller who has received multiple offers wants to choose the one that is: (a) the right price, and (b) likely to close escrow.  Here are some tips for a Buyer to increase the attractiveness of his or her offer:

1. Increase the purchase price
The number one way to increase the attractiveness of an offer is with a high purchase price.  But you must be realistic, otherwise it works against you — a buyer who needs a loan to purchase cannot offer an unrealistic number, because it makes the loan less likely to be approved, and therefore makes the offer less attractive to the seller.  For example, if the buyer is only putting down 20% cash (and therefore needs a loan for 80% of the purchase price), then the buyer will likely need the property to appraise at the same number as the purchase price (or else the buyer will just cancel the agreement after the appraisal and get a refund of the initial deposit; putting the seller back to square one in looking for a buyer who can close escrow).  So a buyer should only raise the purchase price higher than the likely appraisal value if the buyer can put down cash of more than 20%.

2. Limit Contingencies
The standard purchase offer has an inspection contingency for 17-days and a loan contingency for 21days.  But these are negotiable.  A buyer can increase the attractiveness of his/her offer by reducing the amount of days for contingencies. For example, the buyer can usually complete all inspections in 10-days or less, so a 10-day inspection period is fine.  Loan contingencies are more difficult to shorten, because lenders need about 15-days minimum to get a loan commitment letter to the buyer.

In any case, a shorter contingency period is a way to emphasize to the seller that a buyer takes the as-is sale seriously, and will not keep the seller in limbo too long (waiting to hear if the buyer is able to remove the contingency).

A buyer can even waive contingencies altogether if the buyer feels very confident, but this is relatively uncommon.

3. Include a Cover Letter
A buyer can increase the attractiveness of an offer by attaching a cover letter highlighting how much the buyer likes the house and neighborhood etc, and how they are just fine with an as-is sale, and how much they look forward to closing escrow on time.

4. Short close of escrow
The typical escrow period is 30-days.  If the buyer is paying all-cash, they can close escrow in 10-days or less.  But if the buyer needs a loan, he or she cannot realistically shorten this period by anything more than 5-10 days (so, 20-25 day escrow total), because the lender needs time to get the loan approved by the lender’s underwriting department.

5. Increase the Initial Deposit
The typical initial deposit is 1-3% of the purchase price.  But a larger initial deposit (also called earnest money) is a way for the buyer to send a nice message to the seller that the buyer is quite serious about the purchase.  The fact is that initial deposits are refundable during a contingency period, so this item number five is really not that big of a deal one way or another.  It’s more symbolic than substantive.

6. Waive the Real Estate Commission
By hiring an experienced real estate attorney to handle the buyer-side of the paperwork, the seller can save up to 3% commissions.  So this is the functional equivalent to the seller of a higher purchase price. For example, if the buyer is purchasing a $500,000 home with a real estate agent, then the seller must pay the buyer’s agent the stated commission (usually 3%).  But if the buyer does not have an agent (so no commission is due), then the seller does not have to pay that $15,000.

7. Attach a Loan Preapproval Letter
Sellers do not like having to send emails to buyers asking them to please send over a loan pre-approval letter.  So, Buyers should attach one to the purchase offer.  The preapproval letter should be on bank letterhead, or mortgage-broker letterhead.

Likewise, the buyer can also attach to the purchase offer a bank statement (or letter from a bank representative) to evidence that the buyer has sufficient cash reserves to close escrow.

8. Offer to Pay Closing Costs
Usually the parties split the closing costs depending on the County standard (i.e., seller pays escrow fee, and buyer pays for title insurance).  But closing costs are negotiable between the parties.  As the buyer, you can offer to pay some, or all, of the seller’s costs.

9. Inquire if Seller Has Any Unique Requirements
Sometimes a seller wants to close escrow soon (i.e., 30-days) but then rent-back the property while they purchase a replacement home or otherwise make some kind of transition (i.e., for work purposes).  This is the sort of thing you can only learn from talking with the seller or their agent.  And that’s an important part of the process too – building a nice working relationship with the other party so they know you’re flexible and easy to work with.

Greg Glaser, Attorney at Law
San Francisco Bay Area – Northern California
(925) 642-6651 — gregoryjglaser@earthlink.net
Flat Fee Packages Available for Buyers and Sellers Without a Realtor
For Sellers: www.GregGlaser.com/FSBO.html
For Buyers: www.GregGlaser.com/buying-a-home-without-a-realtor.html

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2 thoughts on “Buyer’s Corner: How to Increase the Attractiveness of your Real Estate Purchase Offer in a Seller’s Market”

  1. Thank you Greg for your thoughtful and thorough review of the real estate purchase/sale transaction. I think all Realtors should give out copies to their clients. I did not know that if the buyer decided to cancel the contract even after releasing all contingencies, the seller is only entitled to 3% of the deposit. Is there language that further explains who, if anyone, else is entitled to a part of it?

    1. Thank you for the comment. Yes, it’s customary for the parties to initial the standard “Liquidated Damages” clause in the purchase contract, which specifies the 3% maximum damages rule. The party entitled to those liquidated damages is the seller.

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