In a multiple offer situation? Don’t panic!
- Theresa Grant
- May 6, 2013
- 5 min read
You’ve been an excellent potential homebuyer. You obtained your financing pre-approval, you researched your market area with your Realtor, you toured homes and carefully considered their pros and cons, and you were able to find one that you really like. Excited, you spent several hours crafting an offer with your Realtor and then you heard these words:
“The Seller’s agent says there are multiple offers on the property…”
The truth is that in our market area, real estate is rebounding in a steady, healthy way. When you combine that recovery with our usual summer season of sales in Lake Arrowhead and the surrounding communities, there is going to be some competition for homes that are priced well and are in reasonably good condition. With interest rates as low as they are across the country, it’s a natural and predictable outcome that there will probably be more than one bidder on a home at any given time.
The past years of Real Estate Owner (REO, aka foreclosure) resales have primed the public for the idea of a “highest and best” multiple offer situation. This is when the Seller, via the agent, issues a statement that there are multiple offers on the property and that all Buyers should submit their final, highest and best offer by a certain date and time, and then the Seller will choose an offer to work with. There are no rules to this. The final highest and best round is “blind”, with no disclosure of what the offers are. Buyers re-craft their offer terms, if they want to, and then wait. This practice is not codified by law, however, and no Seller has to call for a multiple offer round. A Seller can have multiple offers on the table and pick one, or pick none, it’s entirely the Seller’s choice.
So what should a Buyer do in a multiple offer situation?
First of all, don’t panic. Unless the home you have chosen to offer upon is a 100% unique property that you will never, ever be able to find again, there’s no reason for you to break the bank over trying to win a multiple offer situation. There will be other houses, and only one Buyer will be able to open escrow on this one house.
As you consider re-crafting your offer, be reasonable about the purchase. If your initial offer asked for concessions from the Seller, such as paying your closing costs, providing a home warranty, asking for personal property to be left behind because you liked it, requesting specific cosmetic or physical repairs, or other dollar items you should evaluate how much those would cost and consider how the bottom line net to seller might compare to an offer that does not ask for concessions at all. Think about what you really need instead of what you would like in terms of concessions. For example, if you are approved for FHA financing and you’re asking the Seller to pay your closing costs as part of the FHA loan, you could raise your offer price 4% to cover the Seller’s cost of doing so — essentially bidding slightly higher for the purchase price but not having out of pocket closing costs. The pool table in the game room doesn’t need to be included. You could negotiate repairs after your home inspection. The home warranty is nice but do you want to potentially lose out on the house for $400? Think about your offer as if you were the Seller, and then proceed in a way that you think is fair.
Consider your loan type vs the property as it is. If you absolutely must use a low down payment loan type, such as FHA, then look for the surface red flags that could cause your offer to be rejected because the property itself would need repairs to qualify for the loan. These qualifying items such as peeling or flaking paint, missing flooring, or a missing stove may not be a big deal to you but they are to a lender and they represent out of pocket costs to a Seller just to sell their house to you. If you can change your offer to Conventional financing, that may be more attractive in a multiple offer situation when compared to other offers with the same net to the Seller.
In the spirit of competition, don’t over-bid. It’s not uncommon for someone to come in outrageously over the list price of a home. We call it “buying the bid” and it’s an attempt by some Buyers to win the bid, get rid of the immediate competition, and then force the Seller to lower the price if the property doesn’t appraise for the purchase price. However, an experienced Realtor will have already prepared their Seller for this situation, and the counter offer will come back with verbiage like this: “In the event the property does not appraise for the agreed upon purchase price, Buyer is to make up the difference in cash between appraisal and contract price. Seller will not reduce the price based upon appraisal.” The Seller will also want to see your “proof of funds” to be sure you have the cash reserves, should the contract be ratified and escrow opened. The over-bid strategy doesn’t work unless you are financially able to make up the difference.
Make sure your Realtor is a a professional and on task. By this, I do not mean call or email your Realtor multiple times a day asking for an update. However, the Realtor you choose to work with needs to be a full-time Realtor who can be reached and communicated with reasonably, who understands the local market, and has a solid work model that is a full-time business instead of part-time hobby. Think about it this way: If there are two offers on the table that pretty much match up in terms and conditions, it will most likely come down to an analysis of the Realtors behind the buyer offers. If one Realtor is a full-time agent with regular, successful closings and the other is someone who has closed 2 sales in a 12 month period, which Buyer offer is going to be more attractive to a Seller who wants to be reasonably sure of closing an escrow?
At the end of the multiple offer situation, remember that only one Buyer can win the bid. You can ask if your offer will be held in “first position” as a backup offer in case the winning bid falls out; some Sellers will do that, others won’t. You could ask your Realtor to try to find out why your offer was not accepted, and consider that feedback before making another offer on a property. However, the best possible thing you can do, if you weren’t successful, is this: Be gracious and move on to find another house that you could see yourself making into a home.
Theresa Grant is a Realtor certified through the National Association of Realtors as a Accredited Buyer’s Representative. She has successfully represented both Buyers and Sellers in multiple offer situations where there have been anywhere from 3 to 20 competing offers at the same time.
Theresa can be reached at (909) 336-7933.
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