Multiple Offers: How Can You Compete?
by Blanche Evans
In a hot market, there are more buyers than homes for sale. Prices may rise, and the days a home is on the market may shorten to a week or even less than a day. Some homes will sell before they are even registered in the local MLS. That means that sellers are often presented with multiple offers. How can you position your offer to be the one the seller accepts?
The best way is to gain an understanding of how multiple offers work and how they benefit the seller. Multiple offers mean that the seller has his/her pick of offers, but that doesn't necessarily mean a disadvantage for you as a buyer. You just have to determine how badly do you want this particular home. If you want to compete in a multiple offer situation here is what you will need to know:
Price & Terms
There are two things that matter to the seller - price and terms. They want the highest price possible, and the best terms available. Both of these areas leave room for negotiation. Just because a seller is entertaining multiple offers doesn't mean you don't have a chance. You just have to hit the right note with the seller that the other contracts don't.
Just to give you an idea of how important terms are to the seller, let's look at a hypothetical situation. You offer a seller the highest price for his/her home, but you put in the contract a contingency that you must sell your home first before you close on the seller's home. It may seem reasonable to you, but these are terms that the seller has no reason to accept. Why would s/he wait for you to sell your home first?
The seller will only accept terms which meet his/her own needs, so keep contingencies to a minimum. Ask your agent to find out from the seller's agent what terms will be most favorably viewed by the seller.
If you can't get there first, get there the best way you know how
In a multiple offer situation, the seller is not under any obligation to negotiate with the first buyer who submits an offer. So, if your offer is not the first offer, don't panic. Because the seller has the liberty of choosing the best offer to negotiate, your offer stands a chance of being noticed.
As you already have learned, the seller will accept the offer that best reflects his/her needs. They not only consider price, they also look at such things as financing and possession dates. That means room to negotiate for you.
Believe it or not, the highest price doesn't always buy the home. Sellers have a number of needs aside from price; they want a quick closing, or a delayed possession, or they may wish to exclude items in the home, and so on. Any offer which puts any of these goals at risk will not be accepted.
A buyer may make the highest offer, but perhaps has not been qualified by a lender. A seller who accepts an offer from an unqualified buyer is taking a substantial risk. Should the offer fall through because the buyer fails to qualify, the home will lose valuable marketing exposure and advantage. In a hot market, many sellers won't even entertain offers presented by unqualified buyers. (Hint: Get pre-approved for a loan. Not only will you know exactly what you can spend, you will demonstrate your seriousness to the seller.)
Your seller may have a special need that is more important to them than price. For example, your seller may have a need to sell quickly, but remain in the home for a period of time until school is out or until a transfer takes place. Your ability to negotiate on this point may be more important than coming up with the highest dollar amount. You can offer a short-term lease post-closing or offer to delay possession to accommodate your seller.
You can do a number of things to get the seller's attention - offer to pay full price, or a little above the asking price. Work with your agent to determine the seller's "hot" buttons, and act accordingly within your budget and your own needs.
Deadlines can be deadly
Don't assume that the seller has to respond to your offer by your deadline. Deadlines are only important to the seller if s/he plans to either accept your offer or wants to keep the negotiations going.
By the same token, if the seller counters your offer and gives you a deadline for accepting, and another offer comes in that is more attractive than yours, the seller can withdraw his/her counter offer to you in writing and accept the other offer.
Don't falter in the negotiations
Don't assume that because your seller is negotiating with you that s/he can't entertain other offers. All it takes is for one party to make a change that the other party doesn't accept and negotiations are over.
In fact the seller's agent is under no obligation to let your agent or you know if there are other contracts on the table or not. The seller may be waiting to see your best offer before accepting another offer that may already be on the table. Multiple offers are often used by sellers to improve upon the asking price or terms. The sellers agent may be instructed by the seller to ask the buyers to "submit improved offers."
This is the time another offer can slip in and take your momentum away.
Answer promptly and with as much generosity as you can muster. Don't nickel-and-dime the seller with requests for small repairs, or complicate the contract with contingencies. Just ask for a repair allowance and take care of the problems yourself.
Hot markets don't stay hot forever
Hot markets may be hot for a while, but there may come a time when they will cool. The home you are so anxious to get now may level off in value very shortly. Make sure that this is the home you want no matter what the market conditions say. The home's history may be helpful here. Ask your agent to provide you with the home's history or a history of comparables in the area. If a home has been sold several times in the last few years, the history can tell you why and how much was gained or lost by the sellers involved.
Also look at the affordability of the home. Are the extra considerations you are offering to stay in the contract really worth it? Do they price the home out of your range? Will you be able to afford the other costs associated with move-in such as furniture and updates?
Know when to throw in the towel
There may come in a time when it is wise to simply give up and move on to another home. Some sellers, in a multiple offer frenzy, will simply make unreasonable demands. Some will even demand offers beyond those which can be justified by comparables or local lender guidelines. Lenders have a ceiling on what they will lend on homes in a given area and it can be broken down by square foot, age, history, and other factors. If the comparables don't justify the price, the lender may refuse to take a chance on being the first to raise the loan limits on a certain neighbourhood or home. You might as well throw in the towel. Sometimes a lender's refusal can be the kick in the pants a seller needs, however, and s/he may agree to your price when confronted by the voice of reality.
The best way to position yourself as the buyer whose offer is accepted is to work closely with an agent who can help you step by step from getting pre-qualified for a loan, to helping you find homes in your pre-approved price range, to helping you negotiate the home of your dreams.