Precursor

Let's just step back a moment before we deep dive into some of these. All the examples below were really submitted by our Agents on properties for our clients. Since then each Buyer has secured a home and has given us permission to discuss previous offers. I'm just showing some examples in different price ranges around Colorado Springs - think of them as offer insights for when you go to shop. Be sure to check out our other post here if you'd like to get some tips and tricks on getting an offer accepted even in this market. And remember this market is unlike any before, appraisal gaps, inspection clauses and other items are common and often expected for the best properties. 

Let's look at some terms so you know what we're on about -------

Appraisal:

A third party licensed appraisers opinion of value of a property so that the bank does not secure money to an asset that is not worth as much as the amount being lent.

Appraisal Gap:

When a Buyer offers money above the appraised value of a property so that the Seller may net more. For example, we offer $500,000 on a property listed for $475,000. The smart listing Agent is concerned about what the property would appraise for and asks for an appraisal gap. The Buyer offers a $10,000 appraisal gap. Therefore, if the property appraises for $490,000 the Buyer would offer an additional $10,000 cash at closing to bring the total purchase back up to $500,000.

Escalation Clause:

A tool that used to be used more often, since recently "highest and best" has become prominent. This clause is saying that the Buyer will offer X amount of dollars ($5000 for example) more than any other verifiable offer typically up to a fixed top price. 

Inspection:

Not to be confused with an appraisal as it often is. A third party service used to inspect the whole property from roof to foundation so that the Buyer may make an informed decision about repairs needed, or to request repairs from Seller.

Earnest Money:

Good faith money (not a deposit) that is typically held by the Title company when a contract is accepted, offered by Buyer.  

Offer Number One

We're starting with one of the crazy ones where the winning offer was pretty damn nuts. This property was sat on the South West side in 80906, 6 beds, 4 baths, 3 car garage with 3,709 square feet. Listing price $725,000. 

Offer price: $750,000.

Loan type: Conventional with 20% down.

Escalation Clause up to $765,000.

Appraisal Gap: Total (whatever we appraised at we would still pay what we offered by extra cash at close).

Inspection Clause: Only repairs we would ask for would have to cost over $5000 to repair by a licensed contractor. 

Closing: 30 days.

DOM: 2

Pretty good offer right? Here is what we know about the winning offer, they closed at $805,000 on a conventional loan with a 28 day close.

Offer Number Two

Now, let's get back to a little more normal when it comes to offers. This was our clients first offer on a property and it wasn't the perfect home for them, but it did hit all their needs and a lot of their wants. A couple of years ago this offer would have been amazing, now we were third or fourth best. The property offered on is in 80922, with 3 beds, 3 baths, 2 car garage and 1660 square feet. It was super well kept and had a beautiful green lawn. List price was $389,000.

Offer price: $410,000.

Loan type: VA with $0 down.

Escalation Clause up to $425,000.

Appraisal Gap: None (this is the main reason we weren't top 2 pick).

Inspection Clause: Only repairs we would ask for would include major health and safety issues. 

Closing: 30 days.

DOM: 6

So, this really wasn't a bad offer, it just wasn't as good as the other ones. First offers with Buyers often go this way despite the advice of Agents, and we get it, paying over the appraised value can be demoralizing. Here is what we know about the winning offer, conventional loan, 30 day close at $432,000.

Offer Number Three

Let's round this off with one final example in the median price range that didn't quite make the cut despite being a seriously good offer. This property was in 80905, so a super cool little area, the home itself was 4 beds, 2 baths, and 1 car garage with 2341 square feet. List price was a reasonable $224/sq ft giving $525,000.

Offer price: $560,000.

Loan type: Conventional with 15% down.

Escalation Clause up to $575,000.

Appraisal Gap: $50,000 

Inspection Clause: None, as there were some concerns for the foundation and the home is in an area well known for these issues.

Closing: 30 days.

DOM: 3

Additional Item: Buyer offered a signed Tom Brady Football.

I think we can all agree that this is a pretty decent offer. It's one I'd be happy for any of my Sellers to receive anyway. But, we were top 3! It can be very hard to predict what people are going to offer in this crazy market, and these Buyers were shopping during the absolute height of the crazy. Despite the strength of this offer here is what won, cash at $576,500. I can tell you what happened. The Listing agent leveraged our offer (and likely other ones) to get the cash to write an escalation above ours. Cash is a safe bet for obvious reasons, it is hard to beat. 

Happy Endings

Fortunately, every one of these Buyers are now in a home that they love and building up their own equity. They were lucky to hit the days of 2-3% rates and are sat on nice nest eggs ever from buying just last year. Again, this post is really just useful as a reference point for people entering the market. Not every home is above ask with everything being waived, but we are still seeing an average of 2-3% above list price when closing. There is hope ahead as the market seems to be finally shifting (thanks to rates and more Spring inventory), but it's still mean out there. If you'd like to learn more about why rates matter and how they affect payments go here. 

Either way, be sure to connect with knowledgeable and experienced Realtors. There is a fine line between a poor investment and getting into a home, let us guide you and advocate for your future!