Real Estate Q&A With Alicia Zhao

Real Estate Q&A With Alicia Zhao
Alicia Zhao
4/11/2015
Updated:
5/13/2015

QUESTION: In this hyper-competitive Bay Area market, what’s the best way to make your offer stand out?

Alicia:
There are various ways to make your offer stand out among the competition. The most important question is to find out what’s important to the sellers. Why are they selling? How quickly do they need to sell? Do they need the sales proceeds to buy their next home? How much mortgage do they have on their current house? How much do they need to sell it for to make a profit? The more you can find out about the sellers, the better prepared you can be for your offer. While price is definitely important, other factors come into play as sellers evaluate offers within a similar price range.

Time to Close Escrow
If the sellers need the sales proceeds to buy their next house, they will be more interested in an offer with a shorter time to close escrow. If the sellers have relocated to another town, and the house is vacant, the sooner the sellers can sell the property, the less it will cost them to carry the vacant house. In these scenarios, the seller may be willing to take a slightly lower-priced offer but with a faster close of escrow.

Noncontingent Offer
A standard contract has three contingencies—appraisal contingency, loan contingency, and inspection contingency. If the appraisal value comes in low, buyers can’t put more down payment, their loan can’t be approved, and the buyers can back out of the offer and get back their 3 percent earnest deposit within the contingency removal period. Or if the inspection report comes back with tons of repair work, and the buyers decide to cancel the contract, they can get their earnest deposit back within the contingency removal period.

However, in a hyper-competitive market, most sellers want noncontingent offers, as houses also have shelf lives. Sellers want to pick a buyer who will not back out of the offer during the transaction. Because, if the initial offer falls through, the sellers have to remarket the property and are likely to lose value on the house. In a hot real estate market, new listings just coming on the market tend to get the best offering prices in the first 10 days. Many buyers are not interested in even checking out the listings that have been on the market for a while. Their thinking is that there must be something wrong with the house if the previous buyer backed out. So when sellers evaluate buyers’s offers, they prefer buyers who are fully committed and are willing to bet on their 3 percent deposit.

One of my clients got their offer accepted even though it was $20,000 lower than the highest offer. The seller picked my clients’s offer because the sellers were doing a 1031 exchange and had to close the transaction by a certain date, and my clients’s offer had no contingency and a quick closing period.

Not all buyers should make noncontingent offers. Buyers should evaluate all the risk factors with their real estate agent and loan officer to make sure. Technically, nothing is for sure until the loan is funded. The buyers could lose their job during the transaction and would no longer qualify for the loan. Although that probability is very low, it does happen to some buyers.

Work With Reputable Real Estate Agents and Loan Officers
One top-listing agent told me that when she receives many offers, she first screens through the representing agents. Listing agents want to work with reputable buyers’s agents and loan officers who are professional, who don’t play games, agents they’ve had a good experience working with in the past. Many times, my clients’s offering price was not the highest, but the listing agent picked our offer because he or she had previously had a good experience working with the buyers’s agent and me. The listing agent knew we would have a smooth closing.

‘Love Letter’ and Picture
I recommend my clients include a love letter and a family picture in their offer to the sellers. Buying and selling can be an emotional decision. Sellers who have lived in their house for many years usually have warm feelings toward their home. They want a nice family to move into it—it’s not just about the money. Many offers are just a dollar amount, and sellers can’t relate to the buyers. So if you write a love letter telling the sellers why you like their home—maybe the special design they did for their kitchen or the beautiful garden deck they built—then the sellers will know you appreciate the home and will take good care of it.

One of my clients’s offers was accepted recently among 24 competitive offers, all above asking price. Many agents called, wanting a counter offer, but the seller didn’t even want to counter. Here is an email quote from the listing agent to my client’s realtor:
“Congrats, attached is the accepted offer, no counter offer. There was a much higher offer than yours, but the seller really liked your offer after I explained the professional manner in which you conduct your business. When I showed her the pictures of you and the buyer, she said they are the ones I would like to have my home. The other agent helped you out, not very professional.”

Free Rent Back
Another factor that creates more value in an offer and provides more convenience to sellers is free rent back. If you need to obtain a home loan for the purchase, the lending industry guideline allows rent back up to 60 days after closing escrow for owner-occupancy purchases. But if you’re buying the home with cash or buying it as a rental, you will not be subjected to the 60-day time limit and can offer free rent back to the sellers for as long as you wish.