How to Win in Multiple Offer Situations 🙌
As we enter the winter real estate market of 2020, odds are you've noticed that local home inventory levels are at historic lows. What else is riding out the year at historic lows, giving many homeowner hopefuls the buying power they've never had before? Mortgage interest rates.
Selling a home is no different than anything else: when supply is low and demand is high, prices and competition rise. So what is a bright-eyed buyer to do when the home of their dream is also the home of five other buyers' dreams? What do you do when your agent turns to you and utters what so many JAX agents have had to say as of late..."we're in a multiple offer situation"?
If you're not pre-approved, you've shot yourself in the foot my friend...Or at least, you're going to add a lot of undue stress to your day. Multiple offer situations usually occur very quickly: meaning it's the first day a listing is on the market, you love it, you've rushed to see it, and now you want to submit an offer. So have ten other people.
Your Realtor® is going to need you to move quickly and make a lot of decisions. If finding a lender, filling out an application, and getting your pre-approval letter in hand isn't already complete, you will only have a matter of hours to catch up to everyone else.
What's Most Important?
A top buyer's agent will call the listing agent before submitting your offer to see if there are any other offers officially submitted, to gauge what level of interest they've had, and to find out what is most important to the seller. Maybe they need a longer escrow period because they don't want to move until school is on break, maybe they want the quickest inspection period possible, maybe they've been burned in the past and the binder deposit is of great concern to them...whatever it may be, find out what is driving that seller.
Win Before the War
If the listing is new to the market and has had a lot of activity, don't submit an offer assuming that the seller will call for highest and best. Submit your most competitive terms and purchase price from the start, in hopes of beating out the competition and avoiding a bidding war.
Price isn't Always the End-All Be-All: Win on Terms
When most buyers hear "multiple offers" or "bidding war," they often think that the highest offered purchase price automatically wins. I'm assuming you've listened to your agent and are already considering submitting an offer price over ask...but it's never only the price that wins.
You should also strategize with your agent to create the most favorable terms possible: shorten your inspection period, offer a hard binder, waive your appraisal contingency, ask the seller when they would like to close, offer a strong earnest money deposit, waive your right to submit a repair request (inspections for informational purposes only), offer to pay the seller's closing costs, or one of many other terms.
There are many negotiable items in a contract that a seasoned Realtor® can craft into a winning offer.
Use an Escalation Clause
If the asking price is $300,000 and there are multiple offers, an escalation offer would start with a price of lets say $305,000 and then say, “Buyer will increase the sales price by $5,000 over any other legitimate offer, up to a maximum price of $320,000.”
Before you submit the offer, call the listing agent to make sure they are familiar with escalation clauses and that they will honor it. After you win the war, verify that the other offer you had to outbid is legitimate.
Knowledge is Power
Having a great dialogue with your agent, regarding local market conditions, is paramount. Knowing what the comparable properties are and how your desired home stacks up, can make you feel empowered about your decision and help you avoid future issues. If you know a home probably wont appraise past a certain point, and you don't want to waive your appraisal contingency, than offering anything above that will most likely cause a potential roadblock later on in the process. On the other hand, if you have the extra funds in hand, this if your forever home, and you've been trying to get into this certain neighborhood for years...than maybe offering more is the right move for you. Possessing the knowledge to make these decisions is key!
Be Realistic: Know Your Limits
This is how I tell my buyers to approach price point in multiple offer situations: "What are your willing to pay for this home? $300,000...okay perfect. Now if someone with the same terms gets this house for $301,000, will you be upset? What about $305,000? Yes? Than your personal max price is $305,000 not $3000,000."
Make sense? At what point are you okay with someone else winning and owning that home. We've researched the market and know what is appropriate within that market...but what your Realtor® can't tell you is what your personal limits are. We don't know where the line lies: which price you're just NOT going to pay, or which price you'll be crying and curled up with a pint of Ben & Jerry's if we don't win. That's your decision my trusty buyers.
Every year I help both buyers and sellers navigate multiple-offer scenarios. Having an experienced agent guide and educate you through the process is key to not only winning, but feeling comfortable with the situation and outcome. If you’d like to learn more about these strategies or have other questions about the real estate transaction, give me a call!