WINNING OVER MULTIPLE OFFERS
When housing inventory is low and buyer demand is high, you may find yourself in a highly competitive market where desirable properties are getting multiple offers after only hours on the market. How can your offer stand out? Read on for some of our tips + tricks to win in a multiple offer situation. Each of these options carries a varying amount of risk depending on your unique situation, so be sure to give us a call so we can talk through the right options for you.
First and foremost, before you start looking at and falling in love with homes in a competitive market, you have to be ready to make an offer. Make sure you get pre-approved through a reputable lender and have a pre-approval letter in hand. We can review standard offer paperwork with you ahead of time and discuss your specific situation and offer terms that make sense for you. That way, once you see a home you love, an offer can be submitted immediately.
We can set up customized alerts for you to be notified the minute a new property comes on the market. Stay on top of these notifications and be prepared to see a home as soon as possible once it comes on the market. Don't waste any time once you find a property you love. We can have the offer ready to go to ensure we are one of the first offers in line.
Offer over list price
This sounds obvious, but we can strategically coach you on whether a property is likely to attract multiple offers based on its position in the market. If you are serious about the house and the numbers make sense for you, particularly if you plan on staying in the house for 10 or more years, you may want to make an offer above list price. Consider this: if the home is listed for $500,000, would you be upset if you lost to an offer that was $515,000? If the answer is yes, increase your offer to $515,000. Repeat this exercise until you determine your "max" price.
Cash is king when it comes to real estate transactions. In a cash deal, sellers do not have to worry about financing falling apart or appraisals coming in low, both of which can cause a deal to fall apart. Many times, sellers prefer an offer that is cash, even if it's not the highest offer, because it is usually the offer that is most likely to close. If you do not have the funds to pay cash on your own, you may have the option to borrow funds from family, cash out equity from an existing home if you have one, or in some cases, certain private banks will front you "cash," allowing you to convert to a traditional mortgage after you close.
Drop that sale contingency
Your offer needs to have as few contingencies as possible. If you are selling your current home first, we highly recommend taking care of that sale before looking for a new home to avoid having to submit an offer contingent upon the sale of your home. Consider staying with family or moving to a short-term rental after the sale of your property while you search for a new home. If you are determined to find your next home before selling, but you need the equity in your existing home to qualify, consider a bridge loan or a HELOC on your current house. Our brokerage offers bridge loans with 6 months free interest when you buy and sell with us!
Waive or shorten the option period
The option period is typically the most stressful time in a transaction for the seller. The buyer is able to terminate the contract for any reason during this period. Generally, this is when you would perform due diligence on the property, including inspections. The length of the option period and the amount you pay for the option period is negotiable. If the home is recent construction and you have the funds to cover $15,000-20,000 in unexpected repairs, you may consider waiving the option period completely. At the very least, offer as short of an option period as possible and offer top dollar for it. We can coach you on the appropriate length and price for your specific transaction.
Offer a bigger earnest money deposit
Earnest money is a deposit held by the title company until closing as a sign of good faith intensions to fully execute the contract. It is generally 1% of the purchase price of the home. Consider increasing your earnest money deposit to 2-5% to show how serious you are about moving forward with the home purchase. In the end, this won't cost you anything additional as you will receive that money back towards the purchase price at closing.
Waive the right to terminate due to lender's appraisal
If you are financing your home purchase, the standard verbiage in the contract concerning third party financing stipulates that financing approval is subject to the lender's property approval, including an appraisal evaluating the market value of the home. If the lender's appraisal comes back lower than the agreed upon sales price, the lender may lower the amount they are willing to loan and the buyer may be able to terminate the contract and receive their earnest money back. One option for a financed offer to become more attractive to a seller is to waive or partially waive the right to terminate the contract if property approval is not obtained because the opinion of value in the appraisal does not satisfy the lender's underwriting requirements. If the lender reduces the amount of the loan due to the opinion of value, the cash portion you will put down is increased by the amount the loan is reduced due to the appraisal. You would need to have the funds available to cover the difference in value in cash.
Consider an escalation clause
If there are multiple offers on the home, an escalation clause enables your offer to automatically increase your suggested purchase price in order to avoid getting outbid. You might say that your offer is $5,000 over the highest offer received, up to $450,000. You would include some stipulations to the escalation clause. For example, capping the amount of your final offer and requiring proof of other offers. Escalation clauses are extremely risky, and there is no standard paperwork in Texas to submit an escalation clause with an offer. Because of this, you must consult a qualified real estate attorney to assist you in drafting such a clause.
Reduce or eliminate seller paid items
There are certain costs in a real estate transaction that are "typical" for sellers to cover, such as the owner's title policy, a residential service contract, or real estate commissions. If you are willing to cover any of these items, your offer may stand out from other offers that are sticking to these terms.
Work with the sellers
Every seller's situation is different, so there may be certain aspects of the transaction that matter more to the seller than others such as the ability to leaseback or a flexible closing date. Some buyers even offer to pay for the seller's moving and storage expenses if they are unable to accommodate a leaseback. We will do the recon to understand the seller's circumstances and come up with a unique set of terms that will help your offer stand out above the rest!
Create a personal connection
Many of you have probably heard that writing a personal note is a nice touch to help your offer stand out. At the end of the day, the sales price and terms of the contract are likely going to matter most to the sellers, but all other things equal, a nice letter describing what you love about the home might create a personal connection that helps you stand out. Many times, sellers are sentimental about their home and like to know that it will be going to a good new owner.
Secure a backup position
If all else fails, make sure you make it known that you are willing to take a backup position. For all of the reasons noted above, deals fall apart all of the time. Executing a backup offer ensures that your offer automatically goes to first position in the event that the initial contract terminates.