The Real Estate Law Podcast

Episode 4 - Strengthening Your Offer When Buying Real Estate

April 14, 2019 Jason Muth + Rory Gill Season 1 Episode 4
The Real Estate Law Podcast
Episode 4 - Strengthening Your Offer When Buying Real Estate
Chapters
The Real Estate Law Podcast
Episode 4 - Strengthening Your Offer When Buying Real Estate
Apr 14, 2019 Season 1 Episode 4
Jason Muth + Rory Gill

In this episode, we're covering ideas to help you submit strong offers when buying real estate.  Win more bidding wars in hot real estate markets.  Receive fewer counter offers when negotiating.  Understand the seller's situation, and you will stand a better chance to land the property of your dreams....or simply your next investment at a favorable price!

Join Jason Muth and Attorney / Broker Rory Gill of NextHome Titletown and UrbanVillage Legal in Boston, Massachusetts for another episode of The Real Estate Law Podcast!  

Support the show (https://www.urbanvillagelegal.com)

Show Notes Transcript

In this episode, we're covering ideas to help you submit strong offers when buying real estate.  Win more bidding wars in hot real estate markets.  Receive fewer counter offers when negotiating.  Understand the seller's situation, and you will stand a better chance to land the property of your dreams....or simply your next investment at a favorable price!

Join Jason Muth and Attorney / Broker Rory Gill of NextHome Titletown and UrbanVillage Legal in Boston, Massachusetts for another episode of The Real Estate Law Podcast!  

Support the show (https://www.urbanvillagelegal.com)

Announcer:

You found the Real Estate Law Podcast because real estate is more than just pretty pictures and law goes well beyond the paperwork and courtroom arguments. If you're a real estate professional or looking to build real estate expertise, then welcome to the conversation and discover more at realestatelawpodcast.com.

Jason + Rory:

Hello, this is the Real Estate Law Podcast, episode number four. Welcome back. Welcome back. I feel like we just did episode number one. It's good to be back though. Well, we didn't really go anywhere. this is just a continuation of an ongoing conversation about real estate law is kind of how I see this. When you nod your head, the people that are listening can't really hear or see that. Well let's keep the conversation going then. Okay. We'll keep the conversation going. Well, my name is Jason Muth and I'm Rory Gill the owner. Broker of NextHome Titletown and attorney at UrbanVillage Legal. Okay. So, we've talked about a number of topics so far and today we're gonna be talking about strengthening your offer. And offering up on a property is probably one of the most exciting things somebody can do. You have to figure out how much you're going to offer when you're going to offer, when you're going to offer, but in some situations when the market is really, really hot, what do you have to do? You have to bid high or bid well and getting your offer rejected can be one of the most deflating things that can happen to you in the home buying process. So you have to know how to make your offers strong, even if you can't afford to just pay more and more, right? So, we've been in that situation here in Boston for a number of years now. It cooled down a little bit toward the end of 2018, but, all signs are pointing toward another strong 2019 so far. We're recording this podcast in February, so who knows what's going to happen. But, it certainly doesn't hurt to act fast, act quickly, act as though you are a buyer that actually means business and sometimes you actually have to put a couple things in that offer that will separate you from your competition. Right. And it takes a little bit more foresight and a little bit more planning to put together a strong offer. It's not just about price. Yeah. And are you saying, Rory, that the strong offers are most necessary in the markets where there's high volume, things are moving really fast. It's very competitive, right? In certain segments of the market too. So, if you're in the lower part of the market here, things are going to go fast. The luxury tier, it takes a little bit longer. But if you're in a prime market and a prime segment of the market, there will be lots of competition for each property. So if it's marketed well, you're going to have to make a smart offer in order to be the one chosen. Right. So, I look at where my parents live. I grew up outside New York City and and they're still there and they live in a beautiful suburb of New York. And your parents are in a great suburb of Boston and very similar like kind of they came up around the same time they were built, back in the 70s and 80s. And there's a lot of sub developments that happened around that time where you basically choose from one of three or four different house styles in that sub development. Some of the property probably doesn't move as quickly as what we're used to here in the city. That's correct. And that's the trend that we've seen in the past few years. But some of the things that would go over today apply to all markets. So even if you're in a market where it's not going quite as fast as it is right here, it's good to know how to make your offer stand out and be a little bit stronger than the rest. So now, you are a real estate attorney and a real estate broker and we should say that, your law practice is UrbanVillage Legal. Yes it is. And your brokerage is called NextHome Titletown. Yes. Both here in Boston? Both here in Boston. And seeing it from both sets of eyes, as an attorney and as a broker, you might be able to offer something up with a client you're working with as a buyer. That might be a little bit different from what just your typical agent might be able to offer because you might have a little bit more insight into a situation that might not be apparent to most people for. Right. I mean you, you want to take a look at your offer and you want them to get strong, but you also understand how to mitigate some risk and also understand what the loopholes are that you can benefit from. Okay. So in, in, in kind of my show notes right here as we're preparing a, what, what we like to talk about with this topic. the, the first thing that's on the list is to know the seller's situation. So what do you, what do you mean by that? That's something that's often overlooked by people and remember the seller is another person involved in this transaction and they have needs and preferences to that big go beyond the price of course is a seller. They're going to want to get the highest price possible. However, there's more to it than just that. It's worth asking the listing agent or even doing some independent investigation to see why they're moving. If they need to move quickly, if they are reluctantly moving, if have they found a new place, are they still looking for new place? All of those things are going to help you understand what the seller needs. If they in financial distress or are they doing quite well? All of these things are going to help you put together a solution that works for them. So the more you about the seller, the better your bargaining position is going to be and the better you're going to be able to do things that don't cost you anything but help the seller, and we'll stand out to the seller. Maybe the seller is relocating to another city and they have to sell their property fast, right? And they got another job somewhere and, and they had to move immediately. Like it could be something where you just have to put it on the market and go, maybe you're going to offer up a different price than somebody that is staying in the market and can move whenever they need to write in time. Timing is key or that also works. Maybe they have to sell it now, but they haven't quite found the other place. So maybe having flexible or longer timeline could work. It all depends on the particular seller. And if you just blindly put an offer without knowing these things, you may put an offer that just doesn't work for the seller and it might have nothing to do with the price. So what about a couple getting divorced? Right? So they're splitting up, maybe it's not amicable. The property is in a competitive market, but it's not going to go immediately. You want to put in a strong offer, but some other things about that, that circumstance. Like what are some things that you might consult a client on? You might want to know. So the tough thing is you want people to pay one spouse before you pay the other. But what have they just found new places to live? Are they looking for a place close by knowing more about their timeline and their situation's going to help? Right. And as someone looking for property, if you're going around with your agent or you are, what are you allowed to ask? Like can that be, can you ask the agent and are they allowed to say that kind of stuff back to you or what they can answer? Most of these types of questions for you, they may decline to give some personal information as professional very well may they don't have to answer all these questions for you, but in the age of the Internet you can certainly go out and take a look and the situations write themselves. The easiest things to spot will be a financial distress. If you're taking a look at the property in public records and you see that there are tax liens on there, or bankruptcy filings, then you know a little bit more about their position. Right? So doing some due diligence, whether or not it's a super hot market or not, is probably some good advice. Yeah, certainly if you're thinking, whether you're thinking as a first time home buyer needing to get into a property or an investor trying to find a good deal on a property, these are all tactics that you have available to you, and just not taking, not investigating, is just going to keep you in the dark. Right? Right. So, okay. So once again, we're talking to Rory Gill from UrbanVillage Legal and NextHome Titletown. And let's talk about a situation where, you're looking at a market, you probably need to figure out if it's going to be a buyers or sellers market before you go into the market. So where you are with the offer that you're going to make - how do you evaluate whether or not you're strong or you're not. You have to take a cold hard look at yourself to see if you're in a good position. You may have worked very hard to get yourself in a position where you can qualify for a mortgage or an FHA loan, and that's commendable. But you have to take an honest look at where that stands in the market. A low down payment in a very hot urban market may not be enough to convince a seller if against competing offers that you're the one. So you need to understand what you can offer and what you can't. If you have a maximum budget, you can't offer more than that. You just don't have it to give. If you need to have a loan with a very low down payment, well that's what you have to use. You can't offer again what you don't have, but understand your position in the market. Understand what that means for you and that'll tell you how much you have to compensate for any weaknesses that you have. But also if you have strengths, if you have an unusually large down payment, if you have, if you're in a rental right now, that's month-to-month and you have lots of flexibility with your move-in date, that's a strength. Understand your strengths too and where you can enter the negotiating position with a position of power, right? Meaning, you don't need to be out August 31st. Like you could be out whenever you want. So you might be able to say to the seller, Hey, listen, like I want to buy your property. I don't know if you're looking for your own property, but I'm very flexible with my close date. So I'd like to put in a flexible close date in our offer just in case you need to stay an extra month or two, right? But no, but even before you're looking at a particular property, just knowing that you give you some extra confidence in the market. Right. Okay. So, there's probably situations where let's say that multiple offers come in on a property and one of them might be, we deal with cash offers a lot here in Boston. I mean like, there's just so much, so much competition that a cash offer often is going to win. But let's say that you are a traditional financing buyer where you have a 30-year fixed loan, you have a letter of approval up to a certain amount, and you want to offer $10,000 above asking. But a cash buyer comes in and says they're going to give $20,000 below asking, those are two things that as a seller you're going to have to evaluate, a bird in the hand or you know? Right. So just remember why the seller is going to prefer the cash buyer. It has nothing to do with where the money comes from. When the closing happens, whether the money came from a loan or from the checking account of the buyer, it doesn't matter why they liked the cash buyer, it's just the confidence that they're going to close on time. There are less moving parts if there's no lender involved. So what can you do to compensate for that position? Get letters of confidence from the lender. If you're working with a good loan officer, have the loan officer put in writing, not, don't have something they can't promise, but have, if there's anything they can say or do to give confidence to the seller or the listing agent that's going to help you offering to speak. Have the loan officer speak with the listing agent is something that can be done to strengthen your position and just give more confidence to the seller that you will be able to close on time. Right? Because I mean, you can get all these documents in the world, but like they're just, it's words on paper. There could be circumstances where, obviously, the banks and the lenders can't give these letters out if they're not intending to go forward with these loans. But anything can happen with financing. Right, right. And also take a look at which lender you're using if you're using a loan. If you saw a commercial on TV and submitted just a quick online application, those lenders may not be as trusted in the market. It's not to say that they aren't good lenders in the end, but local lenders or just lenders that have a good reputation in the area of closing on time are going to give a lot more confidence to sellers than ones that don't. So if you're selling a property and an offer is presented to you from a local lending establishment where the purchase price is exactly what you're looking for, the loan terms look good, the close date looks good, that's going to be a much stronger offer than somebody that maybe has the same price, but the terms aren't favorable. Maybe the close date is pushed out another month, or maybe the actual lender that they're working with doesn't have that much of a track record in the local market. Well, I'm talking about preapprovals that might have the same exact terms, apples to apples. If the lender has a good reputation in the market, that's going to go far to strengthing your position with the seller. Right. Okay. So again, this is the Real Estate Law Podcast. We're talking about how to strengthen your offer for any property or a real estate that you might buy. We're about to enter what we think is another strong market here in the northeast, at least in the cities. So the competition's going to be out there. You've been to open houses the past couple of weekends, right? And the pace is picking up. Yeah. I mean, you've been to Saturday open houses. I've been to about 20 open houses in the past two weekends and you're seeing a lot of people at these open houses all different price points, right? Yes. That being said, as always, the, the mid-tier and lower price points are flooded with buyers right now. Right? The luxury points tend to move a little bit slower anyway, so you're seeing a little bit less traffic for the high end homes. Okay. So let's talk about those where there is a higher level of competition. Okay. You're going to do an open house and it's not unheard of to have 30 people show up at that open house, right? Maybe you have three offers in hand that night or the following day. You're evaluating the three offers. And then maybe you go do you do a last and final after all three, right? Perhaps. So you get ahead of that if what you're looking for in the market. Don't expect to have a lot of time to deliberate. So once you have your preapproval letter, once you know what you want, once you see a place that fits that criteria and you want to put an offer, go right away and beat the open house. If you see something, listen early in the week, go ahead and make an offer or try to get a showing before the open house. Even if the listing says all offers will be considered on Monday, make the offer do the Friday beforehand. They have to present the offer to the seller regardless of what the instructions say. So if there are instructions that say wait and all offers will be considered Tuesday, ignore it. Okay. So when you're submitting offers and if you're going to present it on that Tuesday as you mentioned, what other things are going to differentiate your offer from the other offers that are on the table? We've already talked about the letter, we talked about the type of financing, right? So whether it's an FHA loan, cash, local lender, what else can you do that differentiates your offer from the other ones? So again, if you go back to understanding the seller's position, we've talked about the timing of the closing, making it as flexible or as fast as possible to meet the seller's needs, I think the most important thing you can do. And on that front you also can come up if it's fitting the seller's needs, a situation where you might close before the seller moves out. That contains some risks of its own. But from the seller's point of view, that allows them a little bit of extra time that allows them better position when they go to buy a house. Because now they have more cash on hand and it's not going to be contingent on them selling their first house. But you're now a landlord. You're now a landlord for a brief period and there are lots of risks you should understand and talk with your broker and your attorney about that. But that's another way in a really competitive market to let yourself stand out. If you're willing to do that for the seller, then you might rise to the top of the stack. Right? Okay. And we actually know people that that's, that you, that's happened to them like in it has worked out, but you should understand the risks of that. What about contingencies? When you're in a hot market, you hear people waving contingencies and it's like you're treading water in the ocean. I mean, you're out there and a lot of bad things could happen, but that might be in the situation a lot of people who are in these days. Understand that every contingency you ask for - every inspection contingency, mortgage contingency - everything you ask for weakens your offer a little bit compared to the rest. Now, if you don't have the money to make any repairs, well then you need the inspection contingency and you can't afford to make an offer without it. But understand that that contingency is weakening your position. But if you are in a position where you can trim back or limit the contingencies, do so. So with the inspection contingency, you can waive it all together or you could say that it's for informational purposes only, that you're not going to turn around and ask for lots of concessions from the seller as a result of the home inspection. That is a way to limit the contingency without waiving it all together. With the mortgage contingency, you can set tougher deadlines or you can waive it altogether. If you are really confident in your own financing, you can waive the mortgage contingency and be treated like a cash buyer. That is very risky. But that's a way to rise to the top. And I have seen that done recently with people, but you have to be very confident in your own financing or even have a backup plan in case the loan falls apart. So what if that loan falls apart? Like what is at risk? Your deposit. Most deposits tend to be 5% of the purchase price. So if you put up a deposit and you're unable to close, that deposit is at stake. So you have to understand that risk. But again, in a really competitive market waiving that, you will be treated pretty much like a cash buyer from the seller's perspective. But you are trading the strengthened offer for the risk. We've been in a couple situations ourselves with some property that we've bought and sold that I think understanding kind of what went into the offer or offers that we received. I could see how it is important to kind of evaluate all different types of offers. I remember when we sold the condo, the first condo that I owned here in Boston, we had an over-asking offer immediately after the open house. And after two weeks they did an inspection. They were suburban buyers. They weren't ready for an urban market, in our opinion. And they ended up backing out. Right? Right. And they use the inspection contingency to back out using something that arguably didn't make sense, but it just goes to show from the seller's perspective that the, the added contingencies weakened the offer because there's more of a risk that you're not going to close. Right. And we were kind of lulled into the over asking price point that we got. So we went with that offer and two weeks kind of went by and we had to put the property back on the market, but we had a buyer immediately at asking like, right away. But you raise a good point there too. So if you can't get rid of the inspection contingency altogether, give it a shorter timeframe so you're not holding, the seller's not risking having it being off two whole weeks while you deal with the home inspection. Have a 5- or 7- day home inspection contingency. So that way if you're going to use it, the seller's been only been off for a few days or a week. Right. Now also, conversely we have some vacation rental properties, which we've discussed in other episodes of the Real Estate Law Podcast, and one of them in Provincetown, we actually put the offer in sight unseen. Yes. And I remember, I remember that startling the listing agent a little bit because he wasn't sure that we knew what we were doing, but it goes to show we knew in the market what we were looking for. We had studied the market, we had gotten ourselves ready so that we would be in a position once we saw something that we liked to put in an offer right away with pretty limited contingencies, and we were able to pull the trigger and we had some contingencies that would protect us in case it was a problem. Right, exactly. There was an inspection contingency on there. So we could have backed out if we realized that it just wasn't right. But we did the inspection shortly after. I remember we put the offer in, and then we went to look at it the next weekend. Right, right. So if that particular property went back on market, we put in an offer immediately after that. So they had no chance to get much in the way of other showings or open houses. So we had very little competition for our offer and the seller was forced into a position where they had to make a quick decision. And we actually, I think we got it for a good price because we got it under asking, in a really hot market - Provincetown is super hot. And we evaluated a bunch of other things. It was about to enter the slower season on the Cape, so after the summertime, things cool down a lot there. So we thought going in with the offer that we had, which was under asking and site unseen was super strong. In fact, I thought that was, why they decided to go with us and not even do another open house, and it worked out. It worked out. So do your homework, understand the seller's position. We did some background looking into the seller there. And just get yourself in a position where you can make that snap offer and be strong right now. The next thing on your list is a few more items that we're going to talk about on this episode is personal letter and, our personal story there is, we actually did that with a property in Boston and it did not work out, which we probably didn't have a stronger offer around that letter, but, that was a good letter that I wrote. It was. And I'm putting this down is something that you should know and maybe add to your list, but I have mixed feelings about it. So sometimes a personal letter works if you understand the seller's position and if you think there's, there might be sentimental value in the home and in our case there was, and the letter should have helped. It didn't. But it was worth the little bit of effort that went into it. Right. I think if we had a couple more dollars attached to the offer, that might have helped with that. I bet you if that offer was close to or identical to the offer that they took, which was higher dollar wise, I bet that we probably could've gotten that property. Yeah. Yeah. But that's okay. I mean it's a kind of thing with offering, if you realize that every offer you put out is accepted, then you're probably not offering low enough. That's also true. And again, if the personal letter, if you're buying it off of a big developer, I don't know if there'll be the impression of the personal letter, although a lot of developers actually would like testimonials. So if you can put yourself in a position to offer something like that. Yeah, right. Yeah, they're not, they're not immune to persuasion on soft-fronts too. Let me talk a little bit about pre-construction. Also here in Boston, there's a lot of development, especially in Southie, East Boston, Cambridge, I mean just everywhere in the city, Dorchester has a lot of development. I could imagine that you might even be able to get a good price if you go in preconstruction way early with a strong offer because then the developer is showing interest in the project. They could probably use that to market the other units. They could probably use that to the bank in case they're having any financing issues saying, hey, listen, I'm getting offers on this thing. Like they might even take a below-asking offer just to get a couple of units under agreement and start moving. Better than that, if you see a property that's under construction or under renovation, you know that it is likely going to be sold shortly. So even if it's not on the market, there's no harm in sending an unsolicited offer to the developer. They may very well entertain it. And by having an offer accepted, as Jason pointed out, that will help them in their future sales of the other units. Well, it's a lot to think about. Once again, Rory, lot of great insight. I feel as though, I've learned a few things on this even though I thought I knew everything about how to put in strong offers right beforehand. But here we are with some great ideas, so I really appreciate all of the information that you've given. Why don't we just tell everyone where we could find you. I'm easy enough to find online at NextHomeTitleTown.com or UrbanVillageLegal.com. Okay. That's attorney and real estate broker, Rory Gill. And my name is Jason Muth and I'm one of the hosts of the Real Estate Law Podcast. You could find previous episodes on all of our podcast platforms including Google Play and iTunes and Stitcher and TuneIn and Spotify and all those great places that have lots of fantastic podcasts - and we do love podcasts. But we haven't found too many Real Estate Law Podcast out there, which is part of why we're doing this. So we do really appreciate your listening. If you can give us some feedback, feel free to reach out to [email protected] or NextHomeTitletown.com or you can leave us a review in a whatever podcast platform you downloaded this from. So that's it. So thanks again Rory and we'll see you next time. Great thank you!

Announcer:

This has been the Real Estate Law Podcast, because real estate is more than just pretty pictures and law goes well beyond the paperwork and courtroom arguments. We're powered by NextHome Titletown. Greater Boston's progressive real estate brokerage. More at NextHomeTitletown.com. And UrbanVillage Legal - Massachusetts Real Estate Council serving savvy property owners, lenders, and investors more at UrbanVillageLegal.com today's conversation was not legal advice, but we hope you found it entertaining and informative. Discover more at RealEstateLawPodcast.com. Thank you for listening.