From financing to contingencies, Eric Bramlett walks you through creating a compelling contract to come out on top in multiple offer scenarios.
One year following the launch of Inman’s The Basics newsletter, our weekly dispatch of must-reads for new agents, we’ll spend the month of August digging deeper into what it takes to survive against the odds as a new agent in a tough market.
When the market inevitably roars back, those stressful multiple-offer situations will roar back along with it. Realtors who know how to write the tightest, most impactful contracts — along with effective coaching on offer price — are always in a better position to win for their clients.
Realtors must work with their clients to recommend what specific contract terms are likely to move the needle in their favor and help them decide the most competitive items they’re willing to put forward to close the deal.
Standard contract terms differ from market to market. Contract terms in Texas won’t be the same in California, for example. Below are contract terms you can negotiate to elevate your client’s bid in a multi-offer situation.
Earnest money standards can differ from market to market, but one thing is universal: More is better. When you offer a higher-than-market-normal earnest money deposit, you show the sellers and listing agent how serious you are about the property and about closing.
This is a great option for buyers, as earnest money is protected by the inspection period and other due diligence provisions – there is no risk unless a buyer breaks the contract.
Repairs and appraisal
Many sellers and agents become concerned that the home will not appraise for the purchase price. In that case, standard contracts allow room for the buyer to re-negotiate or terminate. If the buyer will partially waive the appraisal, they are telling the seller they will not walk away as long as the home appraises for some price that is not the full purchase price.
Moreover, the highest impact contract maneuver is the full appraisal waiver in which the buyer waives the appraisal completely. This involves risk if the property is appraised lower than the purchase price, in which case the buyer puts down more money with the bank to be approved for the loan.
To the seller, this maneuver communicates the buyer will purchase the house no matter what, eliminating risk for the seller, which is highly attractive.
When it comes to financing, cash is king, yet that option tends to be out of reach for most people. The most impactful solution, if a buyer does have cash, would be to purchase the new home with it and use delayed financing to then “pay themselves back.” This method requires a new title policy and another closing, so it’s not for everyone and will cost one to 1.5 percent in fees. For those who can do it, it’s a powerful move to secure your offer.
For everyone else, there is third-party financing, which should take place over ten to 14 days. If the buyer is 100 percent certain a lender will approve them, they can put in the contract “not subject to the buyer obtaining lender approval,” This only works if a buyer implicitly trusts their lender and their pre-approval to exercise this term.
If there are available funds, an agent can draft a contract and pre-approval letter from a lender that shows the buyer is putting down 20 percent, 30 percent or 50 percent into the purchase price. This must be provable, as the listing agent is likely to request documentation. If the buyer wants to put down less later, it’s possible to do so without a contract amendment.
These financing methods show the seller that the buyer is serious about their home and confident their loan will close.
Additional impact with letters and a seller leaseback
In a multi-offer situation, a tactic that is often powerful is the use of letters; a pre-approval letter from a reputable local lender assures the seller and their agent that your client has good financial backing (as many have had issues with national or retail lenders). In the case above, if a buyer is able, putting in the higher percent of money down would go in here.
While it’s not guaranteed to help, but falling in line with “it can’t hurt,” writing a buyer’s letter to the seller as to why they want the home is another tactic. These letters range from ignored to extremely successful.
Lastly, the contract could help the seller by offering a leaseback, as moving can be stressful and expensive, and it gives the seller more time to execute. The leaseback could be inexpensive or free, depending on the buyer’s circumstances.
Differentiate your offer with a compelling contract
When your client’s offer is close to another buyer’s — or multiple buyers’ — the above strategies become crucial to differentiate from the pack and entice the seller to choose your client’s bid. Educating clients in competitive markets on the power of competitive contracts from the get-go also aids in the likelihood they’ll be willing to play ball during crunch time – likely winning the home they desire in the end.
Eric Bramlett is the owner of Bramlett Residential, a mid-sized real estate brokerage in Austin, Texas. Connect with him on Instagram and LinkedIn.