Making a Winning Offer in a Tight Market

How to Make an Offer in a Tight Market

Apr 25 2022

When a house you love finally comes along, you don’t want to lose it. And these days, there aren’t enough homes for all the buyers who want them, so multiple offers, escalating prices, and quick sales are par for the course. In a tight market like this, what can you do to make your offer the winner?

We asked veteran Realtor Andy McCrohan, based in the Twin Cities, for in-the-trenches advice. His clients, like homebuyers in many places around the country right now, face all the challenges of high demand and a shortage of starter homes. He offered 10 tips that will help you understand your market, be prepared, and make your offer stand out.

Our favorite, which we never heard before: get your lender to put in a good word for you. Yes, you can do that!

Some of these tips are hard, some are easy. It’s not all or nothing, but the more you can act on, the stronger your offer will be. Good luck!


1. Get real about your market

Here comes the tough love … Today’s buyers almost never get a deal.

“I’ve found it absolutely necessary to set some realistic expectations,” says McCrohan. “I still find that many buyers come into the market thinking, ‘Let’s try to find a good deal,’ or, ‘Let’s be real canny with our offer, and we’ll offer low first and negotiate up.’ That strategy just does not work in this market.”

Are you that buyer? If you were McCrohan’s client, he would help you come to grips with your market with a “scouting mission.” “We’ll walk through two or three homes, not necessarily ones they really love, and get their impression on the price,” he says. “Then I can show them the accepted offers and say, if you want to be in the game, you need to be making offers that are consistent with what everyone else is making.”

You can use open houses to window-shop on your own, then watch the listings for what they sold at.

McCrohan also notes that the list price is now just the starting point. “And it could be artificially low to attract multiple offers anyway. If my buyers are looking at homes at their price point of $275,000, I have to tell them no, this house is going to sell at $300,000. We shouldn’t even look at this, because you’re not qualified to go that high.”


2. Save up enough for closing costs

Bad news for cash-strapped buyers: sellers aren’t paying closing costs anymore. So save up that cash if you want to compete.

“It used to be that sellers were paying closing costs on the vast majority of home purchases, especially those under $250,000,” says McCrohan. “Now, either they’re not paying or, if the buyer doesn’t have the cash, we’re increasing the price by the amount of the closing costs. So the net to the seller is still the same.”

Folding the closing costs into the price can work. Although you’ll be paying 30 years’ worth of interest on the sum. But McCrohan cautions that the strategy can backfire if the price ends up higher than your lender thinks the home is worth. Specifically, if you inflate the price artificially by including closing costs, the appraisal might come in lower than your offer. (The appraisal is done after you have a signed purchase agreement — a contract between you and the seller.)

“The appraisers come in, and they just can’t find the value that the buyer is willing to pay the seller,” he says. “Regulations have tightened, and appraisers really have to make their case to the bank.” A bank won’t approve a loan for more than the appraised value. You have to either cover the gap in cash or pass on the house.

It’s a situation that he’s running into much more than he used to. “I would say that 5 to 10 percent of home purchases have some kind of appraisal issues right now.”


3. Hire an agent who hustles, then hustle together

With homes moving fast, you and your agent have to move fast too, as a team.

“We’re seeing many sellers accept an offer their first day on the market. Agents have to be able to scan new listings, connect with the buyer, and get out there to look at a house within 24 hours,” McCrohan says. “I make sure my buyers are set up for automated searches as well. If we can make it a two-way street, the process can go faster.”


4. Make your first offer your best offer

If you walk into a house and think, “Oh, this is it” (and you will — everyone gets that feeling, says McCrohan), don’t hold back.

“Put yourself in the mind of a seller who’s got 10 people really interested,” he says. “They probably don’t want to negotiate with a low offer. If you don’t come in with a strong offer immediately, you might just get pushed to the side and not even have the chance to make a better one.”

When considering how much to offer, it helps to understand the cost of money right now. “Here in the Twin Cities,” McCrohan says, “we’re being quoted 4.5 percent for a conventional 30-year mortgage.  So if you need to increase your offer by $5,000, that’s no more than $25 a month. That’s less than a tank of gas. You know, can you not go to Starbucks one day a week?”

And remember that the place you buy might be your home for 20 or 30 years. “That extra $5,000 or $10,000 will mean absolutely nothing in 20 years.”

Some aspiring homebuyers never get this, he says. “I worked with a client for over a year who saw a number of homes that he absolutely loved, but I could not get him to make his strongest offer. He continually wanted to try to negotiate with sellers. And he was able to negotiate himself right out of buying a house. He’s still renting today.”


5. Boost your earnest money

The earnest money, or deposit, that you submit with your offer shows the seller you’re serious. It’s typically 1 percent of the purchase price, but in tight markets, consider more. Maybe a lot more.

“It’s definitely a good-faith thing,” says McCrohan. “If you have the cash, rather than putting $1,000 down on a $200,000 home, put $5,000 down.”


6. Don’t ask for anything unusual

In many housing markets, what used to be the norm is now a special request. And you don’t want to go there.

For example, in the Twin Cities, it used to be quite common for the seller to pay for a home warranty — a kind of limited insurance policy. For around $500, typically, a third party warranties basics like appliances, mechanicals, electrical, and plumbing, for one year. But, says McCrohan, “those warranties are going away because it’s an additional $500 the seller can put in their pocket.”


7. Go easy on contingencies

Contingencies are a normal part of the purchase agreement. They specify the conditions under which you can cancel the purchase agreement and get your earnest money back. “Agents are used to writing lots of contingencies because we want to protect our buyers,” says McCrohan. But the seller doesn’t want to see a long list of ways for you to back out.

Some buyers resort to skipping even that most basic of contingencies, the home inspection. They buy the house as is. Scary! “I wouldn’t recommend it for many buyers,” McCrohan says. “For townhouse and condo purchases, maybe it’s not such a big deal, because you have an association taking care of those bigger items that might go wrong.”

Alternatively, just limit the time you have to do the home inspection to a few days, rather than a few weeks, he says. “You can at least give the seller the comfort of knowing that it will be done quickly, and if there is a problem we can fix it right away or they can move on to the next buyer. I have two or three inspectors that are always a phone call away.”


8. Let the seller set the closing date

The timeline is another piece of the purchase agreement that you can consider making more appealing to the seller. The closing date is usually 30 to 60 days from the date the purchase agreement is finalized. Know your seller. Do they want to close fast, or do they need extra time? Flexibility can give you an advantage.

In tight markets, sellers often need a long close, which is making closing dates a more important point of negotiation, says McCrohan. Basically, because there are more buyers than homes, it’s harder for sellers to coordinate the sale of their house with buying another. “I am now seeing closing dates of at least 60 days, sometimes longer,” he says. “Buyers who have flexibility can definitely be in a better position than other buyers.”

He points to one of his sellers, who has received multiple offers, one from a buyer ready to pay above full price — but with a 40-day close. “I had to tell them there is no way they will be the winning bid.”


9. Ask your lender to tell the seller how great you are

It goes without saying in a tight market: include a preapproval letter from your lender with your offer. That way, the seller knows for sure that you’ve got the financing you need. In many markets, sellers aren’t even considering offers that don’t have a preapproval.

But McCrohan goes a step further for his buyers: “Once the preapproval is made and we make an offer, I have the loan officer call the listing agent and tell them that these borrowers are rock solid. They can be very confident that we’re going to follow through and buy this property.”

This works, he says, because in a tight market, buyers are under pressure, and they make mistakes. “They can’t find a house, and they start making offers that are beyond their means. Or they make a snap decision, and then they have second thoughts. We’re seeing a lot of properties come back on the market because the first offer fell through. So a phone call from the lender can be a very powerful thing.”


10. Write the seller a heartfelt letter

Like buying a home, selling one is an emotional experience. Typically, the longer a seller has lived in their home, the more emotional it is for them to pass it on, McCrohan says. “I think especially with older sellers who have raised families in that home, they would love to know that it’s going to be a home for a new family to raise their children.”

So he encourages buyers to write a letter to the sellers. “Include a picture of yourselves and let the sellers know why you love their house and how you can see yourselves living in it for many years to come, and thank them for keeping it in such great condition.”

McCrohan represents sellers too, so he knows this works. He recalls a young family he represented who had renovated their home dramatically during their 10 years there. When it was time to move on, they sold to another young family whose last name was Wonderful. As the sellers learned from the family’s letter, he says, “they had the exact same dynamic, two kids and one on the way, and they both had labradoodles. It was like it was meant to be.”

Even if your last name isn’t Wonderful, you can do your best to show the sellers that you are.


Ready to take the next step in your homebuying journey with all the confidence of a smart and savvy homebuyer? Our comprehensive online homebuyer course is simple and easy to access on your computer, tablet, and mobile device. It’s all the information you need, all in one place. Go ahead and get started today.

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