During competitive real estate markets, it's common for your best offer to get rejected due to too much demand. But if you still really want the property, here are some suggestions on how to make a winning real estate counteroffer in a strong housing market.
I've been investing heavily in real estate since 2003, when I was 26 years old. I bought my first two bedroom condominium in San Francisco for $580,000 that is now worth about $1,350,000.
I have since purchased and sold six other properties and now how have a portfolio of three properties in San Francisco, one property in Lake Tahoe, and one property in Honolulu. I have submitted multiple counteroffers and won.
Finally, I have invested in 18 commercial real estate properties across cheaper parts of the country through real estate crowdfunding. I believe investing inn lower-cost areas of the country is a winning investment.
How To Make A Winning Real Estate Counteroffer
Sometimes, a property is just too good to pass up, even in a competitive situation. You know that even if you pay top dollar today, the property will be much more in the future. For example, I feel this way about panoramic ocean view homes in San Francisco, which offer the greatest value in an international big city.
Buying a ocean view home today in San Francisco is going to be the best real estate investments anybody can make. Not only is San Francisco inexpensive compared to other international cities, but ocean view homes miraculously trade at a discount to the median home price of the city, when everywhere else in the world, ocean view homes trade at massive premiums!
With the creation of Docusign, once your realtor has inputted the terms, it takes less than two minutes to sign and submit your offer over a mobile phone. And unlike applying to colleges, there is no application fee. Electronic offers is one of the main reasons why buying a home has become so much more competitive.
Here are some tips on how to make a winning real estate counteroffer:
1) Don't be afraid to swallow your pride. Don't be too proud to come up with an even better offer after some time has passed. I've seen too many deals come so close only to never close due to big egos.
Unless they have an exploding offer from someone else, wait one or two days to let them digest the magnitude of their decision. This also gives you time to think about whether you really want the property or not. But if they do have an exploding offer, then get back to them within 12-24 hours.
Whatever your final counteroffer is, make sure the numbers make sense for you. If they don't, move on. There are always other properties that come up for sale.
2) Set a hard deadline. When you first make a counteroffer, you may elect not to make a hard deadline to show you are not desperate or because you want the sellers to feel comfortable making the best decision possible.
However, with your final offer, you must include a hard deadline. Your goal is to make them take action and fear what they have to lose they don't take action. If you can combine a slightly higher price with slightly better terms and a hard deadline, you may be able to finally get the seller to acquiesce.
Related: How To Invest In Real Estate If You Don't Want To Own Physical Property
3) Ask the sellers if there's anything else you can do to sweeten the offer. Price is the main component for getting your offer accepted. But other things such as the amount of earnest money you put down, your total downpayment, inspection and financing contingencies, and the length to close are all important as well.
Many sellers are too afraid to say what they really want because people are not professional negotiators and are afraid of confrontation.
During your final maneuvers to get your best and final offer accepted, you should specifically ask whether there are any other contract conditions that can be changed to come to an agreement.
Common items that may sweeten your counteroffer include: a shorter close, a higher downpayment, and waiving of contingencies. You just never know for sure until you ask. To you, closing one week earlier could be no big deal. But to the seller, closing one week earlier could mean the world because they face a time crunch time purchase another property through a 1031 exchange.
4) Include in your counteroffer a real estate lover letter. Although I always recommend including a real estate lover letter during your initial low offer, you should do your best to humanize your final counteroffer with another real estate lover letter.
In the letter, emphasize how much buying the property would mean to your family. Pull on the seller's heartstrings by mentioning how your 3-year-old son said when he first entered into the house, “Mommy and Daddy, when do we move into this amazing house?! Can I play with my toys here?”
The more you can attach purpose and meaning to your counteroffer, the more the seller will want to choose you as a buyer. Well-written words are incredibly powerful. There are essays and books that have changed the course of humanity!
A Winning Real Estate Counteroffer Takes Patience
Buying and selling real estate is always a very emotional decision. If you are a buyer, the more you want the property, the more you are at risk at overpaying. Be careful and always talk things through and run the numbers.
However, if you absolutely know this property is the one, then deploy my strategy and write the final counteroffer with confidence. Real estate is one of my favorite investment asset classes because it not only provides tremendous utility, it also offers the ability to build wealth.
Everyone should own their primary residence and get neutral inflation. In 10, 20, 30 years when rents have risen tremendously, you'll enjoy your relatively fixed living costs, increased equity, and stability. Your house's value will likely inflate with inflation as well, since real estate is a core part of the Consumer Price Index.
You should also consider investing in real estate through a publicly traded REIT and through real estate crowdfunding. I do both for diversification. I like real estate crowdfunding because the sponsors and real estate deals are vetted and the potential income and returns are passive.
I also want to diversify away from the SF Bay Area and into the heartland of America where valuations are cheaper, net rental yields are higher, and growth could be faster given the demographic shifts we are seeing. Thanks to technology, more employees can now make competitive coastal city salaries while living in less expensive cities.
The best two real estate platforms are:
1) Fundrise: Washington D.C.-based Fundrise was founded in 2012 and is the most innovative real estate crowdfunding platforms for non-accredited investors. They are pioneers of the eREIT and have launched an Opportunity Fund to take advantage of new tax rules. For most people, investing in a diversified eREIT is the best way to gain real estate exposure.
2) CrowdStreet: Portland-based CrowdStreet was founded in 2014 and focus their deals in 18-hour cities, secondary cities which are cheaper and may have higher growth potential. CrowdStreet is mainly for accredited investors who are looking for ways to tap the mid-market, heartland of America real estate opportunities. If you have a lot of capital, you can build your own select real estate fund with CrowdStreet.
With real estate crowdfunding, you don't need to make a winning real estate counteroffer. Fundrise and CrowdStreet do the work for you.
Take Advantage Of Lower Mortgage Rates
Finally, if you are buying a property, I highly recommend you shop around for a mortgage online. Rates have collapsed to near 6-year lows, which is one of the reasons why investing in real estate is a good idea. Affordability has gone up, while many people have grown wealthier due to the stock market.
If you're looking for a mortgage, check out Credible, one of the leading lending marketplaces where you can compare real rates and qualified lenders in one place.
