How to win offers
If you're really in love with a property, you can sometimes win it by understanding the seller's motivations.
Price
99% of the time, the seller's motivations are price. They want to sell their home for as much as possible. The more you can offer, the more likely you are to win the home. In situations where the seller asks for a best and final, it is critical that you understand what you can afford, and that you offer the most you are comfortable with.
Escalation Clause
In some states and areas, it is common for buyers to use escalation clauses. An escalation clause is an addendum to your offer that allows you to increase your offer price if someone else makes a higher offer. This is a powerful tool that can help you win a bidding war. You indicate a maximum offer price, and the escalation clause allows you to automatically increase your offer price if the price goes up. You specify the increments to go up, and the starting price.
We've had success with escalation clauses in the past, but they are not a guarantee. The seller can still accept a lower offer if they want to. Usually, we recommend the buyer offer their highest price possible. But if it is very important to pay the least amount possible, you can use an escalation clause.
Financing
74% of home buyers financed their homes in 2024. However, in the eyes of a seller, an offer that contains financing is a disadvantage. But to be super clear, it is the contingency that often comes with it, that makes it a disadvantage.
What does a financing contingency look like? If your offer contains financing, it will look like this:
"I agree to purchase the property subject to my financing contingency. If I am unable to obtain financing, I agree to cancel this agreement within 3 days of learning that I am unable to obtain financing."
In the eyes of a seller, this contingency is a disadvantage because it gives them the ability to cancel the agreement if you cannot obtain financing. Possible reasons a buyer cannot obtain financing include:
- The appraisal comes in lower than the purchase price
- The buyer's credit score comes in lower than expected
- The buyer's debt to income ratio is higher than expected
- Something unexpected happens at the lending instituion
Work arounds
Waive the financing contingency
One way to drastically improve your offer is to waive the financing contingency. This shows the seller that you are serious about buying their home, and that you are not going to back out if you cannot obtain financing.
This is risky because you are giving up your right to cancel the agreement if you cannot obtain financing. If you cannot obtain financing, you will have to walk away from the purchase and forefit your earnest money deposit, which is typically 10% of the purchase price.
For buyers who have the capital to pay for the home without financing, but would rather get a mortgage, this is a great option. If something happens with your financing, you can close in cash, then perform a cash out refinance, to get your money back.
Some people will waive the contingency and roll the dice by moving forward with multiple banks to offset their risk. This is very risky, and not recommended.
Offer a larger down payment
Another way to improve your offer is to offer a larger down payment. By offering a larger down payment, you're lowering the amount you need to finance, which lowers the risk of a low appraisal killing the deal.
Example: If you're buying a home for $1,000,000 and financing $800,000 (an 80% loan-to-value ratio with a 20% down payment), but the appraisal comes in at $950,000, the lender will calculate the loan-to-value ratio based on the lower appraised value. This means the loan would effectively be 84% of the appraised value, which exceeds most lenders' maximum loan-to-value limits, and you would not qualify for the loan.
However, if you're financing $750,000 (a 75% loan-to-value ratio with a 25% down payment), the loan amount remains within acceptable limits even with the lower appraisal value of $950,000, and you would qualify for the loan.
Inspections
In the eyes of a seller, an inspection contingency is a disadvantage. The contingency allows the buyer to back out of the purchase if the home inspection reveals issues that the buyer is not comfortable with. It also allows the buyer to negotiate the price down if the inspection reveals major issues.
We rarely recommend waiving the inspection contingency, because it can reveal major issues that could hurt the buyer financially.
Work arounds
Waive the inspection contingency
If you're in love with the home, you can waive the inspection contingency. This shows the seller that you are serious about buying their home, and that you are not going to back out if the inspection reveals major issues.
This is risky because you are giving up your right to back out of the purchase if the inspection reveals major issues. If the inspection reveals major issues, you will have to walk away from the purchase and forefit your earnest money deposit, which is typically 10% of the purchase price. We usually do not recommend this.
Bring an inspector / general contractor to the tour
If you're in love with the home, you can bring an inspector or general contractor to another tour scheduled with the seller. This lets you do a high level inspection to check for major issues, so you could be more comfortable waiving the inspection contingency. These sort of situations won't reveal everything, but they can give you a good idea of the home's condition.
Seller Motivations
Finally, you can sometimes win a home by understanding the seller's motivations. You can work with your real estate agent to try to understand the seller and why they are selling. When you find out, you can be creative and add clauses that may appeal to them.
Here is an example from a past client of Jamie Realty:
Charles was interested in a home listed in East Hampton, NY. The home was listed below market value because it was an estate sale. The seller was the heirs of the previous owner, and they were emotionally compromised from the death of the previous owner. There was also a ton of personal items left in the home.
The home went for sale, and did an open house on the first weekend it was listed. The open house was flooded by people and there were 28 offers on the home.
Charles was initially nervous that he would not get the home. We advised Charles to add a small clause to end of his offer that mentioned he would remove all of the personal items left in the home. After we submitted his offer, we learned that the seller had accepted Charles offer, which wasn't the highest, but mainly because they did not want to deal with the personal items left in the home that they were emotionally attached to.