I recently wrote an article for sellers on handling competing contracts on their home. So now this article will focus on multiple offers for a home buyers.
The pre-spring real estate market has heated up. Inventory is ultra low and prices seem to be on the rise in many Massachusetts communities as you get closer and closer to the Boston. If the property is in good condition, in a desirable location and priced properly, many times you will see open houses packed and multiple offers submitted with-in a few days of hitting the market.
I have recently seen homes with as many as 18 offers with in a day or two of hitting the market.
When you have competition among buyers, it is ripe for multiple offers with homes sometimes going well over asking. Learn how to present the best offer possible and how a seller may handle the situation.
There are two reasons why home buyers will back away from multiple offers on a home.
One is stress. They just don’t want to deal with the stress. But if you want a good property you are going to have to step up and compete. That may mean you are going to have to deal with multiple offers on a home you really like. And it could mean having an offer rejected.
The second is the fear of overpaying. Let’s stop and think about this.
You have a bunch of buyers wanting to buy a property. Right there it tells you that you are probably not overpaying. You have a line of buyers wanting to buy and usually, the best offers are within thousands of each other! You can turn around and sell this house tomorrow for pretty much what you paid for it.
The alternative is to find an overpriced home and offer thousands or tens of thousands less. But there is no other buyers that want that property, just you.
So when you think about it maybe going over asking with multiple offers is actually a better deal than the home no one else wants but you.
Just one final thought, you have the appraisal in your mortgage contingency, for your financing. If the bank feels the home isn’t worth the price then they won’t let you buy it.
There is nothing that irritates home buyers more than having their offer rejected. Emotions run high and disappointment is to be had. A lot of disappointment comes from misconceptions by home buyers. They have preconceived notions of what a home seller should or should not do with multiple offers.
Import points that home buyers should be aware of :
1) Just because you submitted an offer does not mean you are owed some sort of response. If you decide to put an offer and you get no response, consider your offer rejected. A seller is not obligated to sign a rejected offer nor are they obligated to respond to an offer.
2) While your offer is being negotiated, sellers are free to receive and negotiate other offers at the same time. Your offer does not freeze time. There is absolutely no legal obligation from the seller just because you submitted an offer.
3) Legally, contracts are only enforceable when all parties have signed the contract and all parties are aware the contract is signed. There have been instances of a verbal agreement between parties and a last-minute offer comes in and trumps the offer that has been verbally agreed to. Make sure as soon as everything is agreed to both parties sign immediately.
4) Your acceptance deadline in your contract, really means nothing. If a seller does not sign in your 12 or 24-hour deadline are you really going to walk away? Sellers may stall a little in hopes of receiving a better offer.
5) There are no real laws governing how multiple offers are handled. The only law is all offers must be presented to the seller by the listing agent in a timely manner.
6) Sellers are not obligated to disclose a multiple offer situation. While most will, they do not have to and can instruct their agent not to disclose multiple offers.
7) Your offer is not confidential. If a seller whats to use the details of your offer to prop up another they can. The only way to make an offer confidential is to have a confidentiality agreement between you and the seller prior to tendering an offer.
8) Sellers can handle multiple offers in anyway they want. Remember how a seller handles the offers is their choice, not the agents.
9) A seller is not obligated to choose the highest offer. There is more to a real estate offer than money. There are contingencies to be considered, dates to be met, financing etc…. The best offer may not always be the highest offer.
There is no one way a seller has to handle multiple offers. It is the home seller’s choice. Don’t assume, that multiple offers will be handled in a particular way. This is where an experienced buyer’s agent can help in determining the fair market value of the home, help structure a winning offer and help you negotiate to get the home you like.
1) Reject all offers if none are acceptable to the seller. Occasionally you will run into a multiple offer situation where the seller finds none of the offers acceptable. Typically, the mere fact there are multiple offers means the house is a good value at the price it is being marketed and will go close to asking or over. So it is rare that all offers will be rejected.
2) Go ahead and accept the best offer out of the batch. Maybe an offer just clearly stands out as the best and the seller is getting what they want. They are certainly free to choose without giving you a second bite of the apple..
3) Submit a counteroffer to just one party or any number of parties that they choose. Again, a seller is under no obligation to handle negotiations in a particular manner. One or two of the offers may meet certain needs that the others don’t.
4) Go back to all parties and ask for highest and best offer by a certain deadline. This is what most buyers think will happen and this is what trips up many home buyers. This certainly is the easiest way to give everyone a chance. But, does this have to happen? NO.
1) Get your financing in order- The biggest fear that a seller has is to take their home off the market for a buyer, only to have the deal fall apart because of financing. Most pre-approval letters are as good as the paper they are written on. Work with your real estate agent and get a good pre-approval. What is a good pre-approval? It is one where the mortgage originator has looked at your bank statements, tax returns, paycheck stubs and has pulled a tri-merge credit report. Their pre-approval will usually state they have verified income, assets, and credit. If you only gave a verbal statement of income and assets and have not provided documentation, your pre-approval is not a good one.
2) Work with an experienced buyers agent- An experienced buyers agent will help you pull the pieces together to make the best possible offer you can in a multiple offer situation. I have been in many multiple offer situations and have been the winning offer with my clients. Do I win every one? No, of course not, but I have years of experience in negotiating and an understanding of the market and how sellers think.
3) Understand what the fair market value is of the home your bidding on- The listing price means nothing. A savvy agent knows that listing a home right at the market or just below the current market value will generate multiple offers. When you create buyer competition it usually benefits the seller financially. I have worked with buyers and we have looked at comparable properties that have sold and determined the property is slightly underpriced, yet the buyer still will offer a significant amount of money below fair market value hoping to get a deal, only to be disappointed. This strategy may work when your the only buyer at the table, but will only lead to failure in a multiple offer situation.
4) Come in with your best offer- Don’t try to lowball in a multiple offer situation. Come in with your best offer. Show the seller you are serious. Many buyers are under the notion that a seller will come back with the highest and best offer, but has not always true. Sometimes the seller will only do that with two or three of the best offers or they will just go with the best offer right away. There are no rules or laws of how a seller will act, if you are serious about the home put your best foot forward.
5) Make your offer clean- Help your seller focus on the strengths of your offer. Keep out any real estate contingencies you don’t absolutely need. Absolutely keep out personal items, you don’t know how a seller will react. I recently had multiple offers on a property. There were two similar offers but one had asked for curtains that were not offered anywhere as part of the sale. The curtains were made by a family member that had passed away and the seller had a personal connection with the curtains. The seller was so offended they automatically discounted that offer and went with the other offer. Don’t forget sellers are running the same gambit of emotions as you. Selling a home is as stressful and emotional as it is to buy a home.
6) Consider Removing Contingencies- Removing your standard real estate contingencies from a contract is not for the faint of heart. You have your mortgage and your home inspection contingency which either of them can be removed. Definitely have a heart to heart with your agent and mortgage broker if you are contemplating removing your home inspection contingency or your mortgage contingency
There certainly is no sure-fire way to know. But there are definitely strong signs buyers will be competing on a home. What are those signs?
1) If you are excited by a house, then most likely your competing buyers will be excited too. A home that is a good value based on location, condition and price will generally generate a lot of interest.
2) How new is the home to the market? Generally the newer to the market the more likely the home will have multiple offers if it is desirable. Though sometimes you can run into a situation where you have multiple offers after a home has been on the market for some time.
3) High Buyer Traffic. If you show up to an open house and the house is flooded with home buyers there is a good chance you are standing in the kitchen with a competing home buyer or buyers.
4) Your agent will have a good sense of if the house will go quickly or not. A good agent working on your behalf will be able to have a good sense of whether buyers will be competing with multiple offers on a house or not. Experience counts. Some of us have been out here a long time helping home buyers and sellers and get a sense of what might happen with a particular home.
5) Have your agent call and feel out the listing agent. A quick call to a listing agent asking if there are any offers currently on the table would certainly make sense. Realize an agent can only disclose multiple offers if they have permission from the seller.
5) Determine what kind of market you are in. Multiple offers can happen in any market, whether it is a neutral market, a buyers market or a seller’s market. But the deeper you get into a seller’s market the higher chance you will have of having to compete with other home buyers.
As you can see once you get into competition with other buyers and multiple offers are submitted to a home seller, just about anything can go. In a hot seller’s market, you need to be patient and put your best foot forward. You may lose a few homes, but nothing ventured, nothing gained.
Other Real Estate Resources:
The Home Buyers Ultimate Guide to Multiple Offers was provided by Kevin Vitali of EXIT Group One Real Estate of Tewksbury MA. If you are thinking of buying or selling, Kevin is happy to answer any of your questions and can be reached at 978-360-0422 at anytime.
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