Step 5: Selecting the Very Best Offer
Offers come in all shapes and sizes and as they say, bigger is not always the best. Here's an example of what I'm talking about:
Subject property asking price based on detailed BPO and experienced agent's knowledge of market: $329,000.00.
Time on market: 7 days.
Offers received: 3
Buyer #1: These folks got their offer in fast. They are frustrated after having already submitted offers on 4 other homes over the past 46 days and been rejected on each occasion. The typical real estate agent they are working with is also frustrated and would love to earn a commission check and move on to the next transaction. They are aggressive this time and come in over asking price.
Offer: $335,000.00
Financing: FHA
Earnest Deposit: $3,000.00
Close of escrow: 30 days.
Requested seller concessions: 0
Buyer #2: This is the first offer they have written. They have a slightly more experienced typical real estate agent helping them who wrote up the contract and sent it over via fax. It included a meaningless pre-approval letter and nothing else except for the blank cover page with my fax # written across it.
Offer: $329,000.00
Financing: Conventional 20% down.
Earnest Deposit: $10,000.00
Close of escrow: 30 days
Requested seller concessions: $3k credit toward closing costs.
Net offer: $326,000.
Buyer #3: First time home buyers lucked out and got referred to an experienced real estate professional who has helped several colleagues at their place of employment find or sell a home. This is their first time looking and only their 3rd home visit but the place is perfect and the price is right. It's no accident they were able to avoid previewing 2 dozen homes before finding just the right one because their experienced real estate professional took the time and asked great questions up front and got a crystal clear picture of what "perfect" would look like for them.
Offer: $325,000.00
Financing: Conventional 20% down.
Earnest Deposit: $10,000.00
Close of escrow: 30 days.
Requested seller concessions: 0
In the case of buyer #3 the agent also included a copy of the buyer's credit great credit report, as well as a letter from a bank indicating they had been approved for conventional financing for the appropriate price contingent upon appraisal and property condition only, as opposed to a basic pre-approval letter anyone with a pulse can obtain. They also included the sales comparables they used to arrive at their offer price. The offer was presented very neatly and professionally and included a cover letter indicating what the offer contained and shared some of the enthusiasm the buyers had for the home.
The experienced real estate professional recognizes the ideal candidate is buyer #3 immediately. The fact that they have a 20% down payment makes them stronger candidates than the FHA buyers and less likely to experience financing problems after the offer has been accepted.
The way the offer was presented instilled confidence in the selling agent that the buyer's agent would be able to manage his or her side of the transaction effectively and probably be easier to work with than buyers #2, who don't appear as strong since they are seeking a cash credit to help with their closing costs.
You'd be amazed at the sloppy offers I've received from so called professionals. No cover page, missing pages, missing signatures, no approval letter, hand scribbled notes on fax covers that can't be comprehended. Do you know what I think when I see these? I think the agent either whipped it together in 3 minutes because they aren't really serious and have no faith in the offer and/or their clients ability to actually close escrow and so they don't want to invest much time on it or they are just plain lazy.
According to the National Association of Realtors (N.A.R.) the average real estate transaction generates 107 phone calls from the time the offer is received to the day the escrow closes. With a short sale, quadruple that. Having to rely upon a sloppy or lazy agent on the other side of the transaction while trying to get a short sale closed not only increases the work load with additional phone calls chasing documents and signatures but also increases the time it takes to close and the odds of outright failure.
Let me share with you another secret and save you a ton of trouble. Many buyers submit multiple offers on several properties at the same time assuming it will increase their odds of success.
If you accept an offer from a buyer like this, what do you think will happen if they have another offer approved before you get an approval? What will happen is they will cancel their offer and leave you high and dry.
If you're fortunate, you've obtained a back-up purchase offer from another buyer but still, you'll be forced to re-submit the new offer and start the entire process all over again with the bank.
I'm going to tell you how I've evolved my practice to completely avoid this problem with a powerful and simple technique. I require the buyer with whom we've accepted an offer from to submit a 1% to 3% deposit, depending upon the purchase price. This money gets deposited into our trust account and either returned upon close of escrow or delivered to escrow and used as part of the buyers earnest money deposit once we have acceptance from the bank.
If they are not willing to provide a deposit, I am not willing to accept their offer and it's that simple. Of course some buyers will complain. Which ones? The ones you don't want; the type who will inevitably waste your time and ruin your chance of a smooth and successful short sale. Think of a buyers deposit system as a filter that keeps the junk out.
A solid buyer who truly wants your house will be thrilled to provide a deposit because it will make them feel one-step closer to getting it.
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