How to Handle Multiple Offers for Buyers
Dealing with multiple offers can be one of the most intense and perplexing situations for buyers and their agents in the real estate market. This is especially true when the seller either already has multiple offers in hand or foresees a flood of offers coming their way. In such cases, the risk of misunderstandings and missed opportunities is palpable, and the conventional methods of making and countering offers may not apply as they typically would.
The truth is, there's no one-size-fits-all solution or a set formula to tackle the complexities that come with multiple offers. This scenario can challenge conventional wisdom when it comes to the art of offer-making and negotiation.
1) That's not fair!
It's worth noting that many years ago, the Realtors' Code of Ethics underwent a significant change, eliminating a Realtor's duty to be "fair to all parties," a modification that was deemed appropriate. This change raises an interesting question: what exactly is fair in a situation where five eager buyers all have their hearts set on the same house, yet only one will ultimately secure the contract? As the saying goes, sometimes the cookie can indeed crumble.
When considering this scenario, it's essential to recognize that the Listing Agent's primary objective is to obtain the highest and best price for the seller. This could potentially mean that, as a buyer, your very reasonable offer might sit on the table for several hours or even days while other prospective buyers tour the property and prepare competing offers. The question arises: should you be expected to wait patiently with your offer on the table while the Listing Agent and the seller employ these tactics in the hopes of securing even better offers? It may not seem entirely fair from a buyer's perspective, but it's important to understand that the seller and Listing Agent are acting within their rights by doing so.
However, it's crucial to highlight that there is a level of risk for sellers who choose to delay their responses to perfectly good offers. Protracted waiting periods may lead to a situation where potential buyers grow frustrated and fatigued from the extended wait, causing them to withdraw their offers. In such cases, the seller could swiftly transition from having two or three reasonably good offers to having no offers at all. Mishandling the situation can lead to this unfortunate outcome.
In the ever-competitive real estate market, both buyers and sellers face challenges and risks, and it's our job to navigate these complexities and help you make informed decisions in your best interest.
2) The good news.
Fortunately, buyers get to make their own decisions as well. Our role is to guide you through the process, providing you with a thorough analysis of the advantages and disadvantages of each option, while keeping in mind that the ultimate decision rests in your hands.
In the world of real estate, especially when faced with multiple offers, it can often feel like gazing through a windshield filled with uncertainty, where questions abound. Yet, when you look in the rearview mirror, everything becomes crystal clear. This analogy carries a grain of truth because the right decision may not reveal itself until the dust settles. At some point, every buyer reaches a moment when they must attribute the outcome to fate.
3) Can anything realistically be done?
In situations where multiple offers are at play, we always extend the option for our buyers to consider including a Price Escalation Addendum in their offer. It's important to emphasize that the ultimate decision rests with the buyer. This clause essentially automates the process by incrementally increasing your offer by a specified amount, such as $500 or $1,000, above the highest competing offer, up to a predefined maximum price set by the buyer.
Additionally, it's worth noting that some buyers may also contemplate adding an Appraisal Contingency Addendum to their offer, although this isn't a universal choice. We can help guide you in this deceision.
Each approach comes with its own set of advantages and disadvantages, and the decision on which strategy to adopt should be made with careful consideration. We encourage you to reach out to our team to receive personalized advice tailored to your specific circumstances and the current real estate market conditions. Reach out to us for the best advice.
4) How many offers and how much are they?
One common question that arises in the face of multiple offers is: How many offers are on the table, and what are their respective amounts? The curiosity is natural, and buyers often wonder if they can obtain this information from the Listing Agent or the seller.
The answer is yes, you can certainly ask. However, it's important to be aware that the Listing Agent is generally not permitted to disclose the presence or absence of other offers, the quantity of offers, the specific offer amounts, or the details of the offer terms without obtaining written permission from the seller.
While asking is within your rights, it's essential to understand that the sharing of such information may not be in the best interest of the seller, as it could potentially impact their ability to secure the highest and most favorable offer. So, don't be surprised if you don't receive a detailed response; you may hear something more general like "there are currently two other offers" without further specifics.
5) Sellers don't just look at the purchase price.
When you find yourself in a multiple offer situation, it's crucial to understand that sellers consider more than just the purchase price when making their decision. To give your offer the best chance, consider the following factors:
1. Offer Terms: Besides the purchase price, sellers also evaluate other terms in the offer. These may include the number and type of inspections, the loan type you're using, the down payment amount, any seller's assistance you're requesting, the earnest money deposit, and even the settlement date. Each of these elements can influence the seller's final decision.
Settlement Date: It's wise to find out the seller's preferred settlement date and adjust your offer accordingly, provided it aligns with your own timeline. Flexibility in this regard can work to your advantage.
Loan Type: Sellers often prefer cash offers or conventional financing, as they tend to result in smoother and less complicated transactions. While government-insured loans like FHA, USDA, and VA offer favorable terms for buyers, some sellers may be hesitant due to appraisal inspection requirements and potential mandatory repairs mandated by these loans. If feasible, you might consider switching to a conventional loan, depending on your commitment to the property and whether it aligns with your financial plans. Consult with your lender to determine the best course of action.
Understanding that sellers consider a range of factors beyond the purchase price can help you craft a competitive offer in a multiple offer scenario. Be prepared to make informed decisions and work closely with us to navigate these nuances effectively.
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.