With the lowest months supply of homes for sale I have ever seen it comes as no surprise that multiple offers on the same property have become almost standard… especially in price ranges below $250k, which has the biggest shortage. Since this is also the price range for most first-time home buyers, it is very likely that if you are buying your first home you will be involved in multiple offers.
The seller isn't legally obligated to let you know there are multiple offers, but they usually do… often in the form of a request for 'highest and best offer' by a set date and time. Sometimes the timeline is short, sometimes longer. There are no set rules, so each seller is free to determine how the offers are handled. It is not uncommon for a seller to select the buyer they prefer to work with, then propose some counteroffer terms to seal the deal.
I am currently involved in my fourth multiple offer situation in as many days… and that doesn't count all the showings that were cancelled because they were in the process of reviewing multiple offers.
Although bottom line price is usually the driving factor in getting the winning bid, both buyers and appraisers are much more cautious than during the buying frenzy before the crash, resulting in multiple offers that are often very similar in price. This means that other factors can play an important role.
Every situation is different, but here are some tips to help you manage multiple bids…
MAINTAIN YOUR COOL… DON'T GET CAUGHT UP IN BUYING FRENZY
Expect multiple offers and determine your buying limits in advance. Perhaps the most telling question to ask yourself is how you would feel if your offer were accepted. If you get a pit in your stomach and worry 'what have I done?!' you are offering more than is comfortable for you. Don't panic… the right home for you will come along. I see it happen over and over that when it is right, everything falls into place. Just relax and go with the flow as the old saying goes.
OFFER YOUR HIGHEST AND BEST PRICE
Making a multiple bid offer is different from making a single offer, where you start low and negotiate up. Don't get carried away and go beyond what you can afford, but make your offer high enough that you won't regret not having offered more if you lose it and won't regret having offered as much as you did if yours is the winning bid. The winning bid often yields a net price over list price, sometimes significantly over… but not always. Buyers and sellers are more cautious about price now because of potential appraisal issues. If it is financially feasible for you and you want to purchase the property regardless of appraised value, you could state as part of your offer that you will make up the difference between purchase price and appraised value (perhaps to a limit) if the appraisal comes up short to make your offer stand out from the rest… and of course you need to recognize the financial risk involved.
MINIMIZE SELLER PAID CLOSING COSTS
If you don't need the seller to pay closing costs it can make your offer stronger without them. Most buyers in this price range ask for seller paid closing costs so it often doesn't make a difference. But if you don't ask for closing costs and the rest do, it can make your offer stand out. Also, in the current atmosphere of downward pressure on appraised values it can feel safer for the seller to accept an offer that nets the same amount with a lower sale price.
SUBMIT HIGHER THAN THE MINIMUM EARNEST MONEY
Your earnest money is part of your down payment and you only lose it if you back out of closing once inspection and financing contingencies have been met. Sellers are sometimes afraid buyers may back out, perhaps even more so with offers that are significantly above list price. Submitting earnest money in an amount over normal limits shows you are serious about closing.
KEEP YOUR OFFER AS CLEAN AS POSSIBLE
Avoid adding little things to the purchase agreement…fixing things, having the seller remove items from the property, paying for work orders, etc. Obviously, your offer should not be contingent upon the sale of another property, but in this market shouldn't be contingent upon the closing of another property either to make your offer as strong as possible. Sometimes buyers don't include an inspection contingency, which can have a positive impact when dealing with 'real people' (not banks). Foreclosures usually include an inspection period whether you ask for it or not, so it doesn't have an impact there. I usually advise against skipping the inspection, it is too big an investment to enter into blindly…but there are times when it makes sense depending on circumstances.
PROPOSE A CLOSING DATE TO MATCH THE SITUATION
With new closing rules, it is a good idea to discuss a realistic closing date with your lender before making your offer. If the property is vacant, select a quick closing date as soon as your lender can have your package ready. If the property is occupied and the seller must find another home first, allow a little more time and rather than asking for immediate possession, give them another day or two to move out after closing. (If they are buying their new home the same day after selling their 'old' one, they won't be able to move in until after closing.) Offering flexibility in the closing date can also be a positive factor.
USE A REPUTABLE LENDER
Now, more than ever, using a reputable lender can be an important part of having your offer accepted… in fact one of my buyers this week was chosen over another because of lender. If agents have had previous difficulties with appraisals or other closing issues with a particular company they may be hesitant to accept an offer from that company if they have other choices. If agents and closers have not heard of a company or if the lender does not have a good reputation, they may wonder if your offer will make it to closing. If you are using a broker, using a direct-endorsement lender that does their own in-house underwriting and has their own appraisal pool can be a positive factor in your favor.
MAKE A PERSONAL CONNECTION
If you are dealing with a family home or estate, there is usually an emotional component for the seller. Explaining something about yourself, why you love the home and deserve to be chosen as the winning offer can sometimes have an impact. In foreclosure situations banks are ultimately concerned with the bottom line and don't really care about making a personal connection, but if other factors are equal they may look more favorably on a buyer who plans to live in the property over an investor.
MAKE YOUR OFFER AS COMPLETE AS POSSIBLE
Make sure everything is signed where it should be, and that all forms are included (check supplements and agent remarks). While this typically won't make or break an offer, it sets the tone for a smooth transaction and if other factors are equal it can be a deciding factor.
Sharlene Hensrud, RE/MAX Results - Twin Cities Buyer's Agent
The HomesMSP Team - Sharlene, John, Angela – Minneapolis-St. Paul Realtors