Multiple Offers-Competing Home Offers
Competing With Other Homebuyers in Multiple Offer Situations
A seldom-discussed phenomenon often occurs when a homebuyer decides to write a purchase offer. Maybe you've been house-hunting for weeks and you notice that one home has been for sale for almost six months without any offers. You figure it's overpriced—and you might be right. But you go look at it anyway and you fall in love.
You figure you can get a great price because the seller is undoubtedly desperate for an offer. This is your lucky day! You whip out your checkbook, write an earnest money deposit, and sign the purchase contract. Your buyer's agent then delivers the offer to the seller's agent.
Then your agent calls you the very next day to tell you that the house has been sold to somebody else. How did that happen? Did the seller have a buyer in his back pocket all along? How were you deceived?
You weren't. What typically happens is that the minute you want to buy a home, so do three other people. It's extremely common for the seller of a dated and neglected listing to suddenly receive two, three, or even more offers all within minutes of each other.
So how do you make sure your offer wins when there are multiple offers on a house?
Multiple Offers in Seller's Markets
Sometimes homebuyers wonder if it's even worth trying to compete against other buyers in a seller's market. It's not unusual for a seller to receive 20 offers when there's very little inventory on the market.
It's almost always a good idea to write an offer anyway. Somebody will be the winning offer. Why can't that person be you? It can if you follow some tips to sweeten the pot.
Submit a Large Earnest Money Deposit
Pending home sales sometimes blow up and many sellers worry that once they commit to an offer, the winning buyers might back out of the transaction or default on the contract. By then, all the other buyers have disappeared.
Remember that the earnest money deposit is part of your down payment. You'll show the seller that you're serious about closing if you increase it above normal. You're only offering the seller the money now rather than later, and it speaks volumes.
Show the Seller That You're Qualified
Almost every offer will be accompanied by a lender letter. Ask your lender for a loan preapproval letter to make you stand out from the rest. This is different from a pre-qualified letter. Being preapproved makes you a stronger buyer in the seller's eyes.
Give the Sellers Time to Move
Buyer possession is often a sticking point. It's hard enough to juggle multiple closings when you're selling and buying simultaneously and it's even more difficult when the seller is doing the same. Offer to cut her some slack by giving her two to three days to move out after closing without expecting compensation.
Shorten or Waive Some Contingencies
You have 10 days for inspections for lead-based paint under federal law unless you waive that right in writing. You always want to get a home inspection but consider tightening that time period.
You might also want to waive the loan approval contingency if your loan is solid. Talk to your agent about comparable sales to decide if you want to waive an appraisal contingency.
Offer to Bridge the Gap Between Appraisal and Sales Price
Offer to pay the difference in cash if you have a bit extra on hand and you think the home might not appraise at the price you're offering. The seller is probably thinking the same thing.
Write Your Best Offer
Don't hope for negotiation in a seller's market. Offer your highest price, one you can live with if your offer should be rejected. Do your best! Make it attractive, maybe a little above list price.
Ask your agent for a comparative market analysis to determine pricing. Sometimes sellers deliberately set a price below comparable sales in an effort to generate multiple offers. Paying a little extra doesn't necessarily mean you're paying over market value.
Multiple Offers in Buyer's Markets
The winning offer in a multiple offer situation in a buyer's market is often less than list price. The number of multiple offers are generally considerably less as well. You might be competing against one buyer instead of 20. This can change your approach significantly.
Sell Your Existing Home First
Don't buy before selling if you're moving up and you have a home to sell. On the other hand, you might already have the advantage over a buyer who needs to sell first if you're a first-time homebuyer.
The seller will gravitate toward the offer without a contingency if one of them contains a contingency of sale.
Don't ask the seller to give you personal items and don't expect the seller to pay your closing costs. Find out which costs are customarily paid for by the seller and offer to pay one or more of them yourself, such as title policies, escrow fees, and transfer fees.
Ask your agent to pursue a friendly relationship with the seller's agent, too. Sometimes sellers reject offers based on what the seller's agent has to say about your agent.
Find Out What's Important to the Seller
Ask your agent to sniff out the hot buttons in the transaction. These could be seller requests or listing agent expectations. Ask what will seal the deal, then give it. Maybe it's a fast closing. Maybe it's a longer than usual escrow period.
Share the Love
Most sellers have an emotional attachment to their homes. They want them to fall into the hands of an acceptable buyer. So be that acceptable buyer. Write the seller a brief letter explaining why you love his home so much. It's OK to beg a little. Be sappy but sincere.
Prepare for a Counter Offer
You can write the best offer in the world but a competent listing agent is likely to advise the seller to counter all the multiple offers, even in a buyer's market.
Sellers don't have to make identical counter offers in some states. Each can be different. The seller also retains the right to choose or reject accepted multiple counter offers.
Avoid a Bidding War in Any Market
Yes, you really, really want the home. And so do numerous others. If you're tempted to increase your price again and again, ask yourself this: Do you just want to win or do you really want the house that much? Competitive personalities especially can fall into this trap and you don't want to dramatically overpay for the property.
Come in with the best possible offer you can reasonably afford, one that still meets all the other parameters. Then live with it.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.