I received a call from an experienced and talented real estate agent today and I told her that my buyer client is reviewing financing options and that we have been discussing the terms and conditions of a contract.
A contract on one of her listings – a really nice property in a really nice master planned community in Intown Atlanta.
I told her that my client is probably going to make a “lowball” offer.
She knows what to expect for a win with her seller client, and so do I.
My client wants a win/win. He wants the seller to accept his offer, but he also wants to negotiate.
He thinks that the seller wants to negotiate.
Sellers really don’t WANT to negotiate.
So, I emailed my client and I told him that one way to help establish his offer as a serious offer that demands a serious response from the seller, and not just a toss, is to increase his earnest money offering.
Do you have a clear understanding of the role of earnest money in a real estate contract?
Do you see the role of earnest money from both sides – the buyer’s point of view and the seller’s point of view?
If you want my guidebook to purchasing real estate in Georgia, then call me or write me, OK?
Let me touch on a few other things about this offer and offer you the same advice that I offer my clients when strategizing a “lowball” offer.
My best advice is to consider the word “authenticity” when thinking about the role of earnest money.
Desires for what many buyers want their contract to look like at the closing table are very contradictory to what an experienced seller will accept in Georgia.
My second best advice with earnest money is to consider that the amount can play a “leverage” role. The leverage of MORE earnest money than a buyer might WANT to commit can help a buyer who is making an offer that might be considered outlandish and not worth even countering.
I do not want the seller to respond to my client’s offer with a simple, “hell no,” but I am confident that their current stance will never be a win for the seller.
Since it is the initial offer, it could also hurt my client, if the seller decides to be emotional and angry about the offer and think: “how dare they!”
Buyers never want to insult the seller, and if my buyer wants this house, then he needs to choose his negotiation battles wisely.
Since my client’s current unwritten offer stance is so far away from a win with this seller, the only tactic that I can suggest to make it more “authentic” is to make the earnest money amount 5% minimum.
I would suggest 10% of the sales price as the Earnest Money amount for maximum effect.
He only risks this money if he defaults.
I will not let him default on any deadlines.
I also suggest a 14 day maximum for the due diligence period and a 21 day maximum for the financing contingency, since this is not an “as is” sale and my client is obtaining mortgage financing.
Right now, if my buyer gets the price that he wants, then this price is 74% of the original list price. That is below average for a sale of any property, even distressed property, in Atlanta. At this point, most sellers in this seller’s situation – unstressed and unmotivated to move – will just say “trash the offer.”
I see this all the time – 58.4% of all listed property never sells at all in Intown Atlanta. No wonder, right?
The mother of all Intown Atlanta real estate charts does not lie.
So in many cases, adding earnest money of at least 5% will help the “earnestness.”
Also, closing within 45 days will help the seller’s motivation.
I asked the listing agent, to receive my client’s offer as a serious offer. I also suggested to her that when she presents the offer, would she please ask the seller a question that I ask my seller clients who are similar to this seller, in this situation:
“If you knew that the market would be down another 10% in 6 months, how would this affect your behavior today?”
Sometimes that question helps sellers to be less resistant to any offer.
I would hope that they would counter regardless of the amount, terms and conditions of any offer, but hope is not a strategy.
Heavy earnest money is a solid tactic that a strategic agent and a savvy buyer would deploy, to cushion the blow of a “low” ball offer…