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Multiple Offers: How Can You Compete?
There are more buyers than homes for sale in a hot market. Prices may rise and
the days a home may be on the market for a very short time - even less than a
day. Some homes will sell before they are even registered in the local Multiple
Listing Service. This means that sellers are often presented with multiple offers.
How can you position your offer to be the one the seller accepts? The best
way is to gain an understanding of how multiple offers work and how they benefit
the seller. Multiple offers mean that the seller has a choice of offers; that
doesn't necessarily mean a disadvantage for you as a buyer. You have to determine
how badly you want this particular home. If you want to compete in a multiple
offer situation you will need to know:
Price and Terms - There are two things that matter to the seller - price
and terms. They want the highest price possible and the best terms available.
Both of these areas leave room for negotiation. Just because a seller is entertaining
multiple offers doesn't mean you don't have a chance. You just have to find the
terms that appeal to the seller that the other contracts don't.
Just to give you an idea of how important terms are to the seller, let's look
at a hypothetical situation. You offer a seller the highest price for their home,
but you put in the contract a contingency that you must sell your present home
before you close on the seller's home. It may seem reasonable to you, but these
are terms that the seller has no reason to accept. Why would they want to wait
for you to sell your home first?
Sellers will only accept terms which meet their own needs, so keep contingencies
to a minimum. Ask your agent to find out from the seller's agent what terms will
be most favorably viewed by the seller.
If you can't get there first - In a multiple offer situation, the seller
is not under any obligation to negotiate with the first buyer who submits an offer.
So, if your offer is not the first offer, don't panic. Because the seller has
the liberty of choosing the best offer to negotiate, your offer stands a chance
of being noticed.
As you already have learned, the seller will accept the offer that best reflects
their needs. They not only consider price, they also look at such things as financing,
closing dates and possession dates. That means room to negotiate for you. The
highest price doesn't always buy the home. Sellers have needs of their own aside
from price: they want a quick closing, or a delayed possession, or they may wish
to exclude items in the home, and so on. Any offer which puts any of these goals
at risk will not be accepted.
A buyer may make the highest offer, but perhaps has not been qualified by a lender.
A seller who accepts an offer from an unqualified buyer is taking a substantial
risk. Should the offer fall through because the buyer fails to qualify, the home
will lose valuable marketing exposure and advantage. In a hot market, many sellers
won't even entertain offers presented by unqualified buyers. (Hint: Get
pre-approved for a loan. Not only will you know exactly what you can spend, you
will demonstrate your seriousness to the seller.)
The seller may have a special need that is more important to them than price.
For example, your seller may have a need to sell quickly, but remain in the home
for a period of time until school is out or until a transfer takes place. Your
ability to negotiate on this point may be more important than coming up with the
highest dollar amount. You can offer a short-term lease post-closing or offer
to delay possession to accommodate your seller.
You can do a number of things to get the seller's attention - offer to pay all
closing costs, to pay full price, or a little above the asking price. Work with
your agent to determine the seller's "hot buttons", and act accordingly
within your budget and your own needs.
Deadlines can be deadly - Don't assume that the seller has to respond to
your offer by your deadline. Deadlines are only important to the seller if they
plan to either accept your offer or want to keep the negotiations going.
By the same token, if the seller counters your offer and gives you a deadline
for accepting, and another offer comes in that is more attractive than yours,
the seller can withdraw his/her counter offer to you in writing and accept that
other offer.
Don't falter in the negotiations - Don't assume that because your seller
is negotiating with you that s/he can't entertain other offers. Either party can
make a change; if the other party doesn't accept, negotiations are over.
The seller's agent is under no obligation to let your agent or you know that there
are other contracts on the table. The seller may be waiting to see your best offer
before accepting another offer that may already be on the table. Multiple offers
are often used by sellers to improve upon the asking price or terms. The seller's
agent may be instructed by the seller to ask the buyers to "submit improved
offers."
This is the time another offer can slip in and take your momentum away. Answer
promptly and with as much generosity as you can muster. Don't nickel and dime
the seller with requests for small repairs, or complicate the contract with contingencies.
Just ask for a repair allowance and take care of the problems yourself. Buy yourself
some peace of mind with a home warranty if the seller isn't willing to purchase
one.
Hot markets don't stay hot forever - Hot markets may be hot for a while,
but there may come a time when they will cool. The home you are so anxious to
get now may level off in value very shortly. Make sure that this is the home you
want no matter what the market conditions say. The home's history may be helpful
here. Ask your agent to provide you with the home's history or a history of comparables
in the area. The CMA report is generated from MLS information and should include
historical data going back at lease five to ten years or more. If a home has been
sold several times in the last few years, the history can tell you why and how
much was gained or lost by the sellers involved.
Look at the affordability of the home - Are the extra considerations you
are offering to stay in the contract really worth it? Do they price the home out
of your range? Will you be able to afford the other costs associated with move-in
such as furniture and updates? Does the CMA support the kinds of changes you may
want to make in the home over and above what you are willing to pay to get into
it?
Know when to throw in the towel - There may come in a time when it is wise
to simply give up and move on to another home. Some sellers, in a multiple offer
frenzy, will simply make unreasonable demands. Some will even demand offers beyond
those which can be justified by comparables or local lender guidelines.
Lenders have a ceiling on what they will lend on homes in a given area and it
can be broken down by square foot, age, history, and other factors. This ceiling
is based on an appraisal formulated from CMA information, tax roll data, and gut
instinct. If the comparables don't justify the price, the lender may refuse to
take a chance on being the first to raise the loan limits on a certain neighborhood
or home. You might as well throw in the towel. Sometimes a lender's refusal can
be the impetus a seller needs and they may agree to your price when confronted
by the voice of reality.
The best way to position yourself as the buyer whose offer is accepted
is to work closely with an agent who can help you step by step from getting pre-qualified
for a loan, to helping you find homes in your pre-approved price range, to helping
you negotiate the home of your dreams. |
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