Making an Offer in the Current Housing Market

Photo by Gary Miller.

REAL ESTATE SPOTLIGHT

By Gary A. Miller

The housing market has been booming, and 2021 has started off with faster sales than any recent year. The low inventory and low interest rates are creating competition among buyers for nearly every listing. When there are multiple offers, listing agents call upon buyers to send their “highest and best” to allow the seller to select from among them.

The following factors are frequently part of a seller’s decision-making process. 

Offer Price

Clearly, offer price is the first factor that nearly every seller will consider when comparing offers on their home. However, it is not always the case that the absolute highest offer will win, and that is especially true when there are numerous offers that are in a similar range. The terms below can sway the seller toward your offer, depending on their preferences.

Due Diligence Amount

In North Carolina, buyers offer a “due diligence” fee (DD). You can think of this fee as a deposit that essentially pays the seller for time off market that allows a prospective buyer to complete inspections. The DD check is written directly to the sellers, and it is theirs to keep, even if the buyer walks away from the deal. Naturally, a higher DD amount is seen as preferrable by the seller and can help make the difference when deciding which offer to select. 

Due Diligence Date

An offer also comes with an associated period of time during which the buyer can have inspections completed before the buyer’s earnest money deposit (EMD) also generally becomes nonrefundable. Typically, sellers prefer to see a shorter period of time for due diligence. A high DD amount and short time period combine to show the seller that the buyer is invested in making the sale happen quickly, and the seller is hoping that it also means fewer repair requests or renegotiations.

Settlement Date

The proposed settlement date (sometimes referred to colloquially as the “closing date”) may also be a factor that helps make a particular offer more — or less — appealing to a seller. The seller may need to remain in the home for a longer period of time, making a later settlement period preferrable. Conversely, perhaps a given home is already vacated, and the seller prefers to close the transaction as quickly as possible. The buyer’s agent often can determine in advance of the offer which, if any, of these scenarios applies by communicating with the listing agent.

Financing

Sellers generally view cash offers as stronger than those requiring a mortgage (although the majority of purchases certainly do use a mortgage). Among mortgages, conventional loans are often prioritized over other, potentially thornier, loan types.

Appraisal Gap Coverage

An appraisal gap occurs when a buyer has offered more for a home than a lender is willing to loan, after factoring in down payments. In a competitive environment, sellers often want to know if the buyer is in a position to cover any appraisal gap that may occur. Although this is not a formal part of the contract, making intentions explicit often gives the seller comfort. Appraisal gaps have become an unfortunate, and more common, factor in today’s competitive market, especially in certain locations and price points where demand for housing greatly outpaces the supply.

While sellers ultimately can select their preferred offer based on a wide range of factors, it is important to note that federal law prohibits sellers from selecting offers on the basis of the buyer’s age, sex, race, color, marital or familial status, physical or mental disability, religion, national origin, sexual orientation or gender identity.


Gary A. Miller is co-owner of Red Bloom Realty. He has lived and worked in Chapel Hill off and on since 1994 and is an avid kayaker, traveler and former educator. His real estate column will appear monthly in The Local Reporter.

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1 Comment on "Making an Offer in the Current Housing Market"

  1. Virginia Saam | March 8, 2021 at 6:59 am | Reply

    Very informative article.

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