Handling Multiple Offer Situations when Buying Real Estate

So, I’m working as a buyer’s representative, for a buyer. The likely situation where this occurs is this has just hit the market, it probably has five, ten, or twenty showings in the first couple days, and the listing agent is probably going to let us know that this is a multiple offer situation. They’re going to say highest and best.

I have a couple before me that says Eric, you did a great job. This is the perfect house, we love it, it’s right on our budget. It has everything that we’ve asked for, what can we do to get this house. I say unfortunately, this is the right house for a lot of people right now, and you’re in a contest. And so, we have to determine all the angles to give us an edge.

The biggest angle, the biggest edge, is cash. We say this is a cash offer, well you’re blowing a lot of people out of the water. Because we’re not dealing with a bank loan, we’re not dealing with appraisals, we can probably close a lot quicker. Some sellers, not all sellers, are going to drool out of the corner of their mouth when they hear cash. Because it’s much simpler and it’s much easier.

The funny thing is, if it’s cash or a bank loan, the seller’s getting the same check on closing day, it’s not any different. But, much, much less complicated process. Most people can’t buy a primary residence with cash. That’s not common. I mean, that happens maybe less than 10% of the time.

So, we’re assuming at this point that all buyers are getting a loan, then we have to determine how hot is this property. Then the trick becomes are we going to come in above asking price, and then if we do come in above asking price, will that property appraise. So, if we have to have a loan, we have to have an appraisal. How much above asking price do we feel as thought that property will appraise for, and then do my buyers have the ability to make up the deficiency if it doesn’t appraise. That’s a really complicated way of saying if we’re under contract for 270 and it appraises at 250, will the bank allow, and do my buyers have the means, to make up that $20,000 difference with cash. These are the frank conversations you need to have.

The other things are sometimes terms are more important than price. North Carolina is a due-diligence state. That means that the seller is given money as compensation to take the property off the market. All these things are negotiable, but I can tell you right now, in the Chatham County market, the average due diligence money is $250-500 right now. So, $500 going to the seller to take their property off the market. But, if you’re in a multiple offer situation, you have three or four or five people, 500’s not going to cut it, and the seller’s going to get a little greedy. It might take $1,000 or 2,000. I’ve done as high as $3,500 non-refundable money to show that my client really wants the house.

Put yourself in the position of the seller. Your house is for sale. You’re the seller, that house is for sale for $250,000. Somebody comes in at 255, but they’re giving you $500 to take the house off the market, somebody comes in at 252 but they’re giving you $3,000 to take the house off the market, is the 250 offer now better than the 255 offer. It might be, it might be. That might tip the scales just a little bit.

The other thing that we can do is cleanliness of the offer. We want a clean offer. Some people have to sell a property before they can buy a property. Well, where are you in that stage. Are you about to list your property with a realtor, well that’s far along in the process. Have you listed the property with a realtor but it’s not under contract yet, in a multiple offer situation this is not a good situation to be in. Your property is now under contract, but the property that you’re selling hasn’t been through due diligence. That’s better, I mean you might turn some heads, but that is still going to have the seller and the listing agent concerned.

Your property is under contract and you’re past due diligence, that’s pretty good. Most agents will treat that as a pretty solid deal, but if you’re in a competitive bid situation, a multiple offer situation and you have one that’s contingent, one that’s just a regular mortgage, and one that’s cash, certainly that contingency is going to be the weakest of the three.

So, again, terms are more important. There are other ways to complicate the offer. You can ask the seller to pay closing costs. Well, whatever number you come in at, that seller is just going to subtract that number off the top, so that doesn’t help. There’s another section in the contract that has a home warranty. Do you want the seller to buy the home warranty, let me give you a little bit of advice. If you’re in a multiple offer situation and there are five offers, you don’t want to ask them to pay for a home warranty. It’s just a little bothersome, it’s a little annoyance, or whatever.

The property is for sale, and it says it doesn’t include the refrigerator, and it doesn’t include the washer and dryer, and it doesn’t include the lawnmower. Don’t muck up your offer and ask for all those things. You’re trying to put your best face forward, you’re trying to make this the cleanest, nicest offer ever.

One of the things I think is hugely important, and we’ve done an awful lot, it’s really a California idea, is to attach a buyer letter to the offer. This makes … I mean, sellers are human beings, if it’s not a bank. If it’s not a bank, if it’s not HUD, if it’s not a foreclosure, if it’s a real, real person, a letter can make a huge difference, where the buyer says something that they like about the property. I grew up with an apple tree, you have the most gorgeous apple tree, I can’t wait to make my kids apple pies from that tree. You think that’s corny, that will make your offer. I mean, I have seen stuff like that make a $5,000 difference. Just because sellers are human beings.

I had a multiple offer situation where I was the listing agent, and I presented all the offers to the sellers. I think two or three of them had one of those. It was five offer situation, three of them had those letters, and it really weighed heavily on the sellers. The sellers were acting like they’re in some kind of reality show, and they were making a really, really difficult situation. I mean, there were tears just because these letters were so well written. They were talking about how they’ve always wanted to raise their kids in this type of house or something like that, and so it makes a huge difference.

The other two term things that we can do in a contract that can sway a seller is that we want to shorten the due diligence period, so make sure that you have your vendors in a row and you can get all the inspections done. And then, you want to shorten the closing time, too. Average bank right now will tell you 45 to 60 days, well if you put on the contract 75 or 90 days, that is not going to get a seller excited, so.

If you are in a multiple offer situation, there are a lot of things a good agent can tell you to do to make your offer stand out from the rest.