Low inventory and rising prices have created a situation where multiple offers in hot markets are increasingly common. When prices are rising and new listings are priced using 3-6 month old comparable new inventory is often underpriced. Educated brokers and buyers understand this and quickly offer list or better.
Large investors and local investors, expecting prices to again reach their 2006 peak are buying everything is sight, perhaps creating a new speculative bubble. This creates a challenge for buyers. In addition to the standard methods buyers must employ outside the box strategies listed below to succeed in multiple offer situations
The most critical step to succeed in multiple offer situations is to be an “All Cash” buyer presenting proof of funds with your offer. Many sellers are as concerned that the buyer will close as they are about the price. If you do not have cash in the bank, show a fully approved loan subject only to appraisal.
If possible, evaluate the property’s condition and waive inspections prior to making your offer. If the systems are old, the roof is old, or the siding is damaged take them into account in your offering price. Homes with unknown conditions, code violations, termite evidence, missing wiring or plumbing, mold, shifting walls or foundation problems or other red flags are valid reasons to avoid the home or negotiate an inspection period, but keep it short 3-5 days. Offer to provide the seller the inspection report.
Provide adequate earnest money in the form of certified funds. Many offers will include $1,000 or $2,000 of earnest money so to strengthen your offer consider offering a 10% or 20% earnest money deposit. Higher amounts of earnest money communicate to the seller your intention to close and financial strength. If you decide not to purchase this property, you can always attempt to recover your earnest money through litigation. This litigation would be to establish the earnest money was a penalty, not a reasonable approximation of the seller’s actual damages. Most sellers’ will settle rather than hire an attorney to fight to retain the earnest money.
Present a clean contract; avoid too many contingencies for example: a spouse or partner’s approval to approval, attorney’s approval, seller providing a warranty, a survey, or leaving or repairing certain items. These items may make the difference to the seller saying no to your offer over another.
Do not request the seller pay closing costs. Find an affordable attorney or title company to represent you.
When responding, provide everything in the form the seller requested. Corporate sellers that have specific forms and specific timelines and requirements. They will reject your offer if not completed in full and as instructed. Additionally, their agent may not even be required to present incomplete offers even if it is the highest.
Know the value of the home. Make your best offer. You may not have a second chance. This may be well above list price. Consider an Escalation Clause; if two offers are deemed to be equal state you are willing to increase your offer by X dollars to break a tie with an equal offer. Often 1% of the purchase price is a guide especially if you are in love with the home, provided you are not willing to lose this home over 1%.
Permit your offer to be held as a back-up 10, 15, 20 days. It is not uncommon for the high bidder to make an irrational bid and not deliver earnest money or stop payment. The seller may accept a higher bid with an inspection, financing, or appraisal contingency that fails early in the contract. A seller might want or need a back-up buyer. This is especially true if they went out and contracted non-contingent on a new home.
Offer to close quickly, 10 to 14 days for vacant homes. Sellers are concerned about liability, theft, holding costs and hazards with a vacant home. Offer to close at the seller’s convenience with occupied homes. Be flexible if the seller needs to find a new home, provide them that time.
Have your REALTOR communicate with the seller’s agent to get as much information about the number of offers, range of offers and time limits in a multiple offer situation. Have your agent request to be present if the agent is presenting the offers in person.
Communicate your offer prior to the deadline but not too far prior. Sometimes the listing agent will shop your offer seeking a slightly higher from a preferred client or agent or a competing agent in their office may see your offer. CONFIRM THE OFFER WAS RECEIVED.
If possible try to meet the seller and make a positive personal impression, develop a warm relationship. Meet the five nearest neighbors, make nice, and enlist them in promoting your offer and their desire to have you as their neighbor. These people may be long-time friends and still in contact with the seller even if the seller has moved. Let them know you plan to live in the home verses leasing to a tenant. If you plan to paint, landscape, improve, be active in the community, have children their ages, went to the same college, or share similar interests, don’t keep that a secret. Develop an advocate.
Follow up persistently. Sellers may take a while to respond that shouldn’t mean you remain in the dark. Ask for an answer either way. I like to ask if my buyer were the highest so the buyer can move on if we weren’t. Then I ask if we were close. If so, I communicate that the buyer and perhaps a higher offer. Many sellers will consider higher offers even after the deadline.
In hot markets the goal is to get any home at all without paying too much over today’s real market price. Many markets, including mine are seeing 5-10 offers the day a property hits the market, as many as 70-80 offers within a week for properties that are underpriced. Some agents will purposely underprice new listings to draw multiple offers.
For an owner occupant or the small time investor offering more than the big players in a “best and final” round there may be harsh consequences. They are essentially paying the future price today. As we learned in the 2006, that price may not be higher than what we paid and may in fact be lower.
To summarize, a 62 year old couple was walking alone the beach shore. They found a lantern and cleaned off the sand, a genie appeared and for releasing her granted the couple two wishes. The wife said I wish I could take a first class two year cruise around the world. Instantly two tickets appeared in her hand. Then she asked honey what do you wish for? He said I wish I had a wife 30 years younger than me, instant he was 92 years old. As a final piece of advice when making best and final offers, be careful what you wish for, you might get it.
Atlanta is now one of the Hottest Markets in the US. The window to buy at 1998 to 2002 prices is closing fast.
RE/MAX Greater Atlanta
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