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This post was updated Oct. 8, 2024.
As agents search for ways to communicate and provide buyers value in today’s post-NAR settlement environment, having a clear framework for drafting a winning offer has never been more valuable. In this article, Baltimore-based agent Andrew Undem shares his “five components of an offer” that will help you serve your prospects at the highest level possible while closing more deals.
“Giving prospective buyers clarity on what they’re doing and sharing the process of writing a compelling offer is the power behind the five components of an offer. While most agents simply focus on the purchase price, our ability to explain and utilize these five components is how we can separate ourselves as professional agents,” said Undem, managing partner and team leader of Sure Group with Berkshire Hathaway HomeServices Homesale Realty serving the Baltimore metro area.
The key is understanding how to present each of the components in a way that displays your professionalism and builds the prospect’s confidence in your process at the same time.
1. Purchase price
The purchase price is the area prospective buyers have been conditioned to focus on. Although it’s only one of the components, it’s important to explain how purchase prices are affected by market conditions and timing.
“When it comes to purchase price, a prospective buyer’s understanding of the overall market conditions and the specific property dynamics is critical for our success in crafting a compelling offer regarding price. You must educate the buyers that the purchase price is directly related to days on market.
“If we’re seeing a home that just went on the market, that may have multiple showings on that first day, the buyer needs to understand that it’s going to be difficult to beat the seller up on the price. Give them the ability to think from the seller’s perspective, why would they accept a lower offer when they just put it on the market and have activity?
On the other hand, if a home has been on the market for an extended period of time and there are no other imminent offers, then the situation dictates us to negotiate harder and to be strategic in our offer price,” Undem said.
The key is to future-pace your conversations with buyers, so they understand all the market factors and conditions giving them an accurate perspective on the strategies needed to write an offer with a purchase price that is compelling.
2. Contingencies
When explaining contingencies, it’s important to explain how any contingencies included in an offer are utilized to protect the buyer and to ensure that everything is as it seems. When explaining contingencies Undem gave this example conversation:
When it comes to contingencies, let me explain what each of these are and how they protect you. These will include a home inspection contingency and a financing contingency (for this example). Keep in mind that I will be assisting you with each of these.
The home inspection is to make sure the home is structurally sound and that all mechanical features of the home are performing as designed. The inspection may mention cosmetic deficiencies, but the contingency is only regarding the structural and mechanical integrity of the home.
The second contingency is your financing contingency, which means the contract is contingent upon you qualifying for the loan, and the additional coverage under this contingency is that the home must appraise at, or above, the agreed upon purchase price. The appraisal is another layer of protection in place to protect you from overpaying for the home.
We will discuss closing costs shortly, but just so you understand, you will be paying for the appraisal and home inspection upfront. These contingencies are put in place to protect you, and we want to make sure you are covered upfront on each of these areas. This is the reason they are paid upfront and outside of being included with your other closing costs at the time of closing.
3. Earnest money deposit
Regarding earnest money deposits, Undem said he lets prospects know the norm in his market is 1 percent of the purchase price and that the funds are applied at the time of closing to their purchase price or closing costs. He also tells them that they will get their deposit back if they don’t proceed with the contract as long as they are operating within the terms of the contract.
He mentioned he likes to tell the buyers that in the 12 years and thousands of contracts he has handled, he has never had a client lose their deposit.
Undem also mentioned the earnest money deposit can be increased to make offers appear stronger. If it’s an investment property or home with no contingencies, then he will often encourage the buyer to make a large earnest money deposit to set the offer apart from other potential offers. The key is to explain the norm and how it may make sense to utilize the earnest money deposit as a tool to enhance the appearance of the strength of an offer.
4. Settlement date
The settlement date is an area Undem likes to utilize to increase the attractiveness of an offer for the sellers.
“Many sellers have life events that mean closing sooner, or at a specific date, could be more valuable than money. This could be a job transfer, children starting school at a certain date, or their next home not being available until a certain date. In the past, by asking the listing agent if there was an ideal date for the sellers to close, that intel helped me write offers that were accepted by the sellers even though the purchase price was lower than other offers the seller received.
“Also, homes that are vacant or that are not being lived in typically want to close as quickly as possible, so by shortening the closing date, your offer may appear more attractive to the seller. Sometimes giving the seller what they need on the settlement date can help your buyers get more of what they want on the purchase price or terms,” Undem said.
5. Closing costs
Undem stated that most buyers have heard the term closing costs, but very few agents take the time to explain them. Undem explained closing costs with this example conversation:
Closing costs are costs associated with a buyer closing on and purchasing real property. In the states of Maryland and Baltimore, we have a transfer and recordation tax that is a total of 3 percent of the sales price split equally by the buyer and seller. This is negotiable, but in nearly every contract this is split equally.
In our area, you get to select the title company. This is the company that will be transferring the property from the seller to you, and there are fees associated with that transfer. These include title insurance, which is a one-time fee that protects you all the way back and into the future on any claims of ownership on the property.
Your lender is going to ask you to put up money in escrow for homeowners insurance and property taxes. You will see these mentioned as prepaids on your loan estimate from your lender. The lender will also provide you with a loan estimate of closing costs and costs associated with your loan within three days of you making an application.
“People want to know what is going to happen before it happens,” Undem said. “In all five components, you need to be unconsciously competent in the process and clear in your articulation.”
Understanding when your buyers are showing the signs that they love a house and may be ready to write an offer, Undem suggests saying:
If it was me, I would write an offer with this purchase price, with these contingencies, asking the seller to pay the following closing costs, with an earnest money deposit of (X) and a closing date of (Y).
By doing so, you hit all five components and clearly show the buyers the path to writing a compelling offer.
Most buyers want to be led. When you lead from a place of professionalism and clarity, you will close more deals and build lifelong clients.
