There is no guaranteed way to get an offer accepted in a multiple offer situation, but there are some best practices that you can follow to greatly increase your likelihood of becoming THE buyer, instead of just A buyer.
I’m writing a post on how to win multiple offers because as many in the Pacific Northwest have noticed over the last couple of months, there is a strikingly low amount of inventory in our market.
That makes it all the more likely that you’re bound to encounter other buyers at the buying table if you’re looking to purchase a new home.
See for yourself; this is a breakdown of our market’s “active inventory” (meaning, homes that are for sale) by month. See the difference between this year compared to the previous year in June/July 2019.
We’re at a fraction of where we usually are in the summer months. Typically, July is an even busier month than August.
The other factor that goes into this is that we now have more buyers than ever in the market. With interest rates for all kinds of loan programs hitting new lows, the market has been flooded… and there aren’t enough lifeboats! If you catch my nautical drift.
As a result, the competitiveness factor has been turned up to 11 out in most markets. If you see a beautiful new home hit the market on a Thursday, the seller will likely have an offer review date on the following Monday and be sifting through not only your offer but also 10+ other ones that came in.
We have to recognize the situation for what it is. It’s quintessentially a seller’s market. Sadly, if you are a buyer, this is not the best time for you to be hunting around for a deal.
Not only that, but the market is super polarized in terms of WHAT people are buying. Check out this graph below (graphs are so exciting, aren’t they?).
This is a breakdown of what price range people are buying in. The most competitive brackets are the $350k to $450k range and the $1M mark. Two polar ends of the spectrum.
Many buyers are struggling to keep up with the median price, especially if you’re a first-time buyer.
Given this situation, I’m going to give you my best insight as to how to weather a multiple offer scenario, and ideally, how to win multiple offers battles :).
The first hard truth I have to spell out is that there is no guaranteed way to win a multiple offer scenario.
Guarantees are nice, and they make everybody feel comfortable and cozy inside, but the fact is that you don’t have control over this.
Rather, you have INFLUENCE! You can positively influence the situation, striving for the best possible outcome. That’s what I’m going to show you how to do.
When you’re putting an offer together, you have to focus on the factors that are within your control. Here are the things that a seller and their listing agent will be looking at when your offer comes through.
Let’s rip this band-aid off. If there is an offer review date, and the property is beautiful… you can believe that there are other buyers who are going to pounce.
So even if the property is listed at $500k, you are probably ill-advised to submit an “asking price” offer. I know, that feels unfair. Why would they list it at $500k if that’s not what it costs?
Well the tough reality right now for buyers, is that we’re kind of in an “eBay” style market. High bidders drive the price up and create a more competitive price point.
When you’re structuring your offer with your real estate agent, think about your upper limit long and hard. You likely won’t get a chance to negotiate with the seller (depending on how many offers are on the table), and you’re also likely to be ignored if your offer is simply the asking price.
Depending on the price point, I’ve been seeing homes go anywhere from $20k to $50k over asking price (with some outliers, of course). That’s rough stuff, but keep it in mind that your purchase price ought to be higher than the listing price.
How high that is will depend on:
Choose wisely and consult your realtor as well. Ultimately, this is YOUR decision, and nobody else’s. But you have to know that price matters to the seller, and it’s sadly not the season to be making low offers when other buyers are bidding the price up.
Earnest money is not required in a transaction, but it is so ubiquitously used that it might as well be. If you were to submit an offer with no earnest money, it’s very likely that you’d be forgotten about altogether.
Not having earnest money effectively shows the seller that you have no skin in the game. If the transaction goes off the rails, you won’t lose anything. That’s not a great point of negotiation, especially in a sellers’ market.
Earnest money is paid upfront and applies to your purchase price, so it is not supplemental to the actual purchase price. It is credited at closing. But, since you do have to pay it right up front, you have to have the liquid cash ready to go.
That being said, having anywhere from 1%-3% earnest money is seen as a pretty strong benchmark for buyers.
I’ve had some sellers who balk at the low earnest money and choose an offer that had a higher earnest money amount. It shows more commitment to successfully closing the transaction since you would forfeit it if you were to break the purchase contract outside of any written-in contingency (that’s another topic for another time).
Consider how much money you’re willing to pledge to purchase because the seller will be paying attention.
Having a pre-approval already completed is basically a requirement in this market. Make sure you get this step done early, and if you don’t have a lender, ask your realtor for a few options to refer you too.
The seller doesn’t want to “wait and see” if you can afford the house. They want to know that you can.
Ah, everybody’s favorite. Contingencies.
So let me ask you this - which scenario do you like better?
“I’m willing to give you my Playstation 4 for free!”
I’m willing to give you my Playstation 4…. But first, I need to get a look-see at your TV and also sell off all my other games first.”
Likely, you’d like the one where I just give you my PS4 for free, right?
Contingencies are special conditions placed on the purchase that must be satisfied before you can purchase the property. Sadly, if you have to sell your own property before buying another one, it can be an unattractive contingency to the seller. It’s an unknown factor, and that’s what makes contingencies tough to negotiate in this market.
The most common one is the inspection contingency, which I of course recommend always doing in some capacity.
You’ll encounter other buyers who elect to waive the inspection altogether. This forfeits them an opportunity to look at what they’re buying and understand what the devil they’re getting into.
I don’t advise my clients to ever waive their inspection contingency. It’s happened once, but the client elected to do it on their own because it was the difference between getting the house and not getting the house.
Truly, it’s a tricky spot to be in. I suggest to my clients that they do a nice compromise in the middle and do a “pass or fail inspection.”
A pass or fail inspection is basically an inspection where you certify upfront that you are not going to ask the seller to make any repairs or concessions based on what you find in the inspection.
If your inspection comes back with a busted electrical panel and rats in the crawlspace, it’s now up to you as to whether you want to buy it and repair it all yourself. You won’t be asking the seller to take care of it.
The seller likes this because it means they won’t shed any further cash out into their property before selling it. And the buyer also gets an opportunity to make sure they’re not buying a lemon.
In a competitive market, doing a full inspection where you ask the seller for concessions is really only possible if you’re offering a substantially higher purchase price or if the seller doesn’t have any other offers on the table.
Talk to your realtor before doing this, because it’s important to thoroughly evaluate the property you are purchasing and feel comfortable with it. After all, unless you’re buying an investment property, this is about to be your home!
The closing window on average is about 30 days. However, the seller may have some special constraints in their schedule and need more or less time.
It’s important for your realtor to connect with the listing agent ahead of time and find out if the seller prefers a quick or longer closing (or even needs to rent the place back for a couple of days).
Making the offer tailor-made to fit the seller’s needs is a great way to eliminate friction in winning a multiple offer situation.
I guess we can’t talk about multiple offer situations without talking about escalations.
In a nutshell, escalation addendums basically set your UPPER LIMIT for how high you’d be willing to go in terms of purchase price… but only if there are other offers that drive the price up.
Here’s an example for you.
Let’s say there is a property listed at $350k.
You make an offer for $370k (knowing there will be competition) but you also submit an escalation addendum that states you are willing to beat any other offer by $1,000 up to $390k.
Now, this doesn’t inherently mean that you’ll pay $390k, but you could.
Let’s say then that another buyer comes to the table and offers $385k. In your escalation, you set an increment that you’re willing to “beat” other offers by. In this example, it was $1,000.
So now, you would be paying $386k for the house, which is still within your escalation range.
Conversely, if the other buyer offered $390k, you’d have to go to $391k to beat it, which is now outside of your escalation range.
Does your head hurt yet?
Escalations are common in these situations, but a lot of agents will tell you to “submit your best and highest.” Meaning, the escalation is kind of a last resort. It’s a tricky one to negotiate through… if we’re working together, we’ll definitely have a good conversation about this.
When you have these crazy bidding wars that erupt, there is some concern that the property purchase price will get bid so high that the appraisal won’t go through.
To circumvent this, there is a form that can be filled out with your transaction that basically specifies an exact dollar amount you are willing to kick in as extra down payment money toward the purchase price, in the event that the appraisal doesn’t meet value.
I’ve lost to other offers before that promised $10k in the event that the property didn’t appraise. You don’t HAVE to do this if the property appraises at value, but if it doesn’t, it offers the seller some assurance that they won’t have to drop the purchase price.
Sometimes throwing in a few unexpected X factors can be helpful. This is a trick that was taught to me by my talented lender friend Shannon Woodward.
Submitting a general addendum that specifies that the buyer’s agent will pay for the house cleaning prior to move out.
That would mean that I’m throwing a few sprinkles on top, out of my own pocket. I’ve done this before for some buyers that I REALLY want to get pushed to the top of the pile. And it definitely stands out. Many other parties aren’t going to offer anything that makes the sellers’ life easier.
Remember that the seller is a human being too, and they might want to think about what makes life easier for them.
Another way you can swing this is by writing an addendum that specifics that you’ll pay for their moving company… (hahah), but that might be a little too expensive, depending on the house.
The point here is to think about what other kinds of things you can put forth in the transaction to really differentiate yourself. Offering to pay for a cleaning is a super neighborly thing to do, saves the seller some time, and some money.
You have to face the fact that you cannot control every single aspect of the transaction.
I’ve had some clients lose offer situations for the following reasons:
The fact is, it is ultimately the sellers’ own decision. They are outside your control, but they are within your influence. Try to get to know their needs as well as you possibly can prior to submitting an offer. Your talented realtor (like me!) can help with this.
This brings me to my last piece of advice.
This one is critical, and I feel that the many agents overlook it.
You do not get to have direct contact with the seller in an agency relationship. You communicate through your licensed real estate professionals. Your gateway to the seller is none other than the listing agent.
Make sure that your realtor gets a great line of dialogue opened up with the listing agent so that you are:
While it’s ultimately the sellers’ call as to what offer to accept, if their listing agent expresses confidence in one particular party being easy to work with, that can help influence their choice.
Better to have it than not need it, right?
There’s a lot more I could go into, but I’m already ticking up toward the 3,000-word mark. Submitting offers is kind of an art form, and doing it in an organized, thought-out fashion is the key to having the best odds of success.
If you are looking around for a property in this wild frontier market, please contact me. I’m battle-seasoned and can help you get a competitive edge in finding your next home!