In case you had not noticed, we are in a pretty heavy seller’s market. Low inventory, coupled with steady to rising demand, means that any quality properties that come on the market are snapped up pretty rapidly. With frequency, many properties are selling with a multitude of buyers vying for the pleasure of purchasing said property. This multiple offer, or multiple bid situation can lead to some amazing, silly, and downright head-scratching circumstances.
If You Are a Buyer
Understand that the seller typically wants the highest amount of money for their home, placed in their hands, in the shortest period of time, with the least amount of hassle. As you deign to write an offer on your next home, and you learn there will be at least one other offer to compete for the seller’s blessing, here are a few things to keep in mind to strengthen your offer. First, know that a cash offer can be difficult to overcome. So, if you can purchase a home with cash, as opposed to financing the purchase, you are starting off very strong.
- Conventional versus FHA: Understand that FHA financing has an appraisal component that has stricter guidelines than the conventional mortgage appraisals. Stricter appraising guidelines is one more thing for a seller to leery about.
- Large Downpayment: Bringing 20% or more in downpayment to the offer table, is excellent. That downpayment amount is a good indicator of your ability to close a mortgage, should there be appraisal value issues.
- Offer Over List Price: Chances are very good that the listing agent and seller chose their list price based on current market conditions and recent sold homes. If you and your agent are comfortable with the value of the home above the list price, but still supported by comparable homes, offer higher than list price. You should also offer over list price in a multiple bid situation if the home really speaks to you. Sometimes, market value does not equate to peace of mind or a buyer’s desire for *that* home.
- Guarantee Above Appraisal: If you bid above list price, but the price appears to be outside of the likely appraisal value range, guarantee an amount of money above the appraisal price, but not to exceed your above list price bid. If the sales price is $220,000, but you think the home will top out on appraised value at $215,000, offer $5,000 above appraised value, not to exceed a sales price of $220,000.
- Escalation Clause: Some listing agents will honor an escalation clause, others will not. However, an escalation clause could easily spell the difference between horribly losing a bidding war, and winning the bid, without over bidding. The clause works the following way: the buyer offers an initial sales price and then offers to beat the next highest sales price by some amount, typically $1,000 in my marketplace, up to a ceiling sales price.
- Informational Only Inspection: Personally, I am not a fan of this option for my buyers. If you’ve won the bidding war, and have also blown out an inspection contingency, you are potentially walking into a home that is sold well over market value and has some exceedingly high repair bills. However, some buyers may be comfortable with this option as another way to win a bidding war. My fear, for my buyers, are the hidden repair costs.
As you can see, there are a few things you can do to make your offer stand out in a multiple bid situation. Understand that the inspection contingency being negated, is a large issue. This is not something to consider lightly. This is one less point in the contract where you, a dissatisfied buyer, can terminate the purchase contract.