How to Handle Multiple Offers for Buyers
Probably no other scenario faced by buyers AND their agents can be more nerve-wracking and at times confusing than making an offer when the seller has multiple offers (or highly anticipates multiple offers to be forthcoming). The very real possibility of misunderstandings and lost opportunity expands with multiple offer scenarios. Unfortunately, there is no real cookie-cutter solution or systematic approach to the potential pitfalls. Multiple offers being made on one hot listing have the ability to blow the lid off of the traditional thinking about making offers and counteroffers.
1) That's not fair!
It is interesting to note many years ago, the Realtors' Code of Ethics was modified (and rightly so) by removing a Realtor's duty to be "fair to all parties". What is fair when five buyers all desperately want the same house and only one of the buyers ends up with the contract? As they say, the cookie can and sometimes does crumble. If the Listing Agent's job is to get the seller the highest and best price, might it mean that your very reasonable offer is left on the table for several hours or even days while other buyers are viewing the home trying to prepare even more offers? As a buyer, why should you wait around with your offer on the table for possibly days on end while the Listing Agent and seller employ stall tactics while waiting for possibly higher offers to be made? Is that fair? Well, actually the seller and Listing Agent are perfectly within their rights to do so, even though it sure seems unfair if you are the buyer. Also, understand there is risk to sellers who wait days on end to respond to perfectly good offers. If they stall too long waiting for more offers they may find out the hard way that all the buyers finally grew frustrated and weary from waiting and withdrew their offers completely. If that happens, the seller's table may end up devoid of all offers. A seller can quickly go from two or three reasonably good offers to ZERO offers in a real hurry if they mishandle the situation.
2) The good news.
Fortunately, buyers get to make their own decisions as well. Our job is to help you evaluate the pros and cons of your options knowing that you ultimately decide which road to go down. It has been said that with multiple offer scenarios, that the windshield is nothing but question marks, but the rearview mirror is oh, so clear. That saying holds some truth in that you may not know if you made the correct decision until the dust clears. At some point, a buyer must chalk up whatever the outcome to fate.
3) Can anything realistically be done?
Well, we always offer our buyers the opportunity to add a Price Escalation Addendum on their offer when in multiple offer scenarios. Again, the buyer ultimately decides, but this clause automatically increases your offer by a bid increment (maybe $500 or $1,000) higher than the best offer up to a "cap" or predetermined maximum price determined by the buyer. It might make sense to add an Appraisal Contingency Addendum to such and offer, but some buyers might not do that as you will read further below. There are pros and cons to this approach as well, which is why you should reach out to us for the best advice.
4) How many offers and how much are they?
Can you ask the Listing Agent or seller how many offers they have received and the amounts of offering price? Yes, you can ask, but the Listing Agent technically cannot disclose the presence or absence of any other offers, the number of offers, offer amounts and/or offer terms without the written permission of the seller. You can certainly ask, but keep in mind that sharing that type of information may work against the seller getting a better offer, so don't hold your breath waiting for an answer. You probably won't get any real answers besides something such as "there are currently two other offers".
5) Sellers don't just look at the purchase price.
When comparing multiple offers (especially if they are similar), sellers may weigh many other offer terms besides purchase price such as the total number and type of inspections, the loan type, the down payment amount on the loan, amount of seller's assist (if any), earnest money amount and even the settlement date can have an influence on the seller's final decision. It's a good idea to find out what settlement date works best for the seller and revise the offer accordingly (if the date also works for the buyer). Several other factors can influence a seller's choice of one offer over another. Most sellers prefer a cash offer or conventional financing whenever possible because they are typically less complicated transactions.
Offers with government-insured loans such as FHA, USDA, VA usually offer fantastic loan terms for the buyer. Unfortunately, many sellers view the appraisal inspection requirements and possible mandatory lender required repairs of these types of government-insured loans to be nothing more than additional red tape and more hassle than a conventional loan. It may make sense to switch your loan type to conventional in these scenarios, if at all possible. It all depends on how much you want the house and if a conventional loan works for you, so check with your lender to be sure.
6) Show me the money.
Buyers need to know that the larger the down payment on your loan and the higher your earnest money amount, the stronger your offer will look to a seller. Sellers like knowing the buyer has a larger down payment since it's generally easier for the buyer to qualify for a loan. Sellers also like seeing a larger earnest money deposit because they know the buyer is much less likely to walk away from the deal or they will likely lose that money. Additionally, if you elect fewer inspections than the other offers, that will go in the plus column of the seller as well. Naturally, a higher earnest money deposit and fewer inspections involve more risk to the buyer, so it's important to carefully weigh your options. Check out our page on Making an Offer for more info.
7) Pulling out all the stops.
This can be one approach used by some buyers because they really, really want the house - no matter what. It's a more aggressive approach whereby they might include a large deposit and waive the Mortgage Contingency, even though they are planning on getting a mortgage loan anyway. These types of buyers know for absolute certain they will have no trouble getting the loan or can pay cash if all else fails. They might even throw in a Price Escalation Addendum and waive the Appraisal Contingency PLUS guarantee to make up the difference in cash if the appraisal comes in lower than the sales price! That approach is certainly not for everybody as it includes much more risk to the buyer, but it is a strategy employed by some buyers with ample financial resources and an extreme desire to win the bidding war. It's unusual and sounds almost farfetched, but some buyers with the financial wherewithal may want a particular house so much, they really don't care if they are paying over the appraised value.
8) A more reasoned approach.
Although we cannot condone the practice due to Fair Housing Law considerations, another strategy used by many includes buyers sending handwritten cover letters (known as "love letters") with their pictures along with the offer asking the seller to please consider their offer over others because they love the house so much. On the other end, we even know of one seller who chose an offer that was $8,000 LESS than the highest offer because they "liked the buyer" -- go figure. So the seller has the freedom of choice to accept whatever offer they desire. The buyer also has the freedom of choice to pay more, pay less or simply walk away from the table. In the end, that's probably fair after all.
If you have more question or need advice on handling multiple offers and how to get your offer accepted, contact us below. Also, start your online search with some of our featured areas.