Say you've been house hunting for weeks. You notice one home has been for sale almost six months without any offers. You figure the home is overpriced, and you might be right. But you go look at it anyway. You fall in love.
It's the perfect home for you, and you figure you can get a great price because the seller is undoubtedly desperate for an offer. This is your lucky day. So, you whip out the checkbook, write an earnest money deposit and and sign the purchase contract. Your buyer's agent then delivers the offer to the seller's agent.
That night you're dreaming about the home. You toss and turn, thinking about how you will arrange your furniture, which color you might paint the bedroom. The next morning your agent calls to say the house has been sold to somebody else.
How did that happen? You're astonished, then angry, and later, depressed. You wonder if the seller had a buyer in his back pocket all along. How did you get deceived?
You weren't. What typically happens -- and I can't explain why -- is the minute you want to buy a home, so do three other people. It's extremely common for the seller of a dated and neglected listing to suddenly receive two, three or more offers, all within minutes of each other.
Tip: When you find a home to buy, write your offer immediately. Ask your agent to call the seller's agent to find out if there have been recent showings and whether anybody else might be writing an offer.
Multiple Offers in Seller's Markets
Sometimes home buyers wonder if it's even worth trying to compete against other buyers in a seller's market. When there is very little inventory on the market, it's not unusual for a seller to receive 20 offers. It's almost always a good idea to write an offer anyway. Here are tips to make your purchase offer outshine the rest:
- Submit a Large Earnest Money Deposit.
Pending home sales sometimes blow up. Many sellers are worried that once they commit to an offer, the winning buyers might back out of the transaction or default on the contract after all the other buyers have disappeared. The earnest money deposit is part of your down payment. By increasing it above normal limits, you are showing the seller you are serious about closing. You're only offering the seller more money a little sooner than later, but it speaks volumes.
- Show the Sellers You Are Qualified.
Almost every multiple offer will be accompanied by a lender letter. To stand out, ask your lender for a loan preapproval letter, which is different than a prequalified letter. Being preapproved makes you a stronger buyer in the seller's eyes.
- Give the Sellers Time to Move.
Buyer possession is often a sticky point. It's hard enough to juggle multiple closings if you are selling and buying simultaneously, and even more difficult if the sellers are doing the same. Cut the sellers some slack by giving them two to three days to move out after closing, without expecting compensation.
- Shorten or Waive Some Contingencies.
By federal law, you have 10 days for inspections due to lead-based paint, unless you waive that right in writing. Always get a home inspection, but tighten the time period. If your loan is solid, waive the loan approval contingency. Talk to your agent about comparable sales to decide if you want to waive an appraisal contingency.
- Write Your Best Offer.
Don't hope for negotiation. Offer your highest price. Make it attractive, maybe a bit above list price. Ask your agent for a comparative market analysis to determine pricing. Sometimes sellers deliberately set a price below comparable sales in an effort to generate multiple offers, so paying a little extra doesn't necessarily mean you are paying over market value.
Multiple Offers in Buyer's Markets
In buyer's markets, the winning offer in a multiple offer situation is often less than list price. The number of multiple offers are generally considerably fewer, meaning you might be competing against one buyer in-lieu-of 20. Here are suggestions for competing:
- Sell Your Exiting Home First.
If you are moving up and have a home to sell, don't buy before selling. If you're a first-time home buyer, you might already have the advantage over a buyer who needs to sell before buying. If one offer contains a contingency of sale, the seller will gravitate toward the offer without a contingency to sell.
- Play Nice.
Don't ask the seller to give you personal items. Don't expect the seller to pay your closing costs. Find out which items are customarily paid for by the seller and offer to pay a few such as title policies, escrow fees, transfer fees. Ask your agent to befriend the seller's agent because sometimes sellers reject offers based on what the seller's agent has to say about your agent.
- Find Out What's Important to the Seller.
Ask your agent to find out the hot buttons in the transaction. These could be seller requests or listing agent expectations -- ask what will seal the deal and give it to them. Maybe it's a fast closing. Maybe it's a longer than usual escrow period.
- Share the Love.
Most sellers have an emotional attachment to their home and want to see it fall into the hands of an acceptable buyer. Be that acceptable buyer. Write the seller a brief letter explaining why you love the home and why you deserve to be chosen as the winning offer. Be sappy but sincere.
- Prepare for a Counter Offer.
You can write the best offer, and a competent listing agent is likely to advise the seller to counter all the multiple offers, even in a buyer's market. In California, for example, sellers do not need to make identical counter offers. Each can be different. Also, the seller retains the right to choose or reject accepted multiple counter offers.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.