Multiple Offers

 

When a multiple offer situation occurs, what should buyers consider?  There are many factors that a seller considers and the highest purchase price isn't always the winning bid.  Some things to consider as you write your offer are contingencies, seller expenses, timelines and more.  A buyer can ask their agent to find out if a seller is looking for any specific terms to help them make an educated offer (sellers are not obligated to answer); example, the seller may be looking for a quick sale or they may need time to find a home.

 

Sellers do not have to disclose multiple offers, the amounts nor terms.  Buyers should present the seller with their best offer at terms suitable to the buyer and in a manner that a buyer feels confident with the offer, whether they get the home or not.  Seek legal and/or financial council if you need it too.

 

What to consider in a multiple offer situation:

 

·         Be Qualified

o Submit a current (not expired) preapproval letter with your offer OR proof-of-funds for cash offers.

·         Loan type

o Cash – no lender is involved and therefore less requirements to close.

§ a home equity line of credit ready to use can be considered like a cash offer.

o Conventional – typically has less “red-tape” than other loans and buyer has a down payment.

o FHA/VA/USDA – all require the home to qualify for the loan as well as the buyer.

§ Review our “A Loan Red Flags” list.

§ Buyer may have a small down payment or no down payment.

·         Purchase Price

o What will you offer? Your starting point will be a factor.  Too low and you may be out-bid and too high the seller may be concerned with appraisal values.  

o Escalation Clause

§ Example:  Your offer is for $100,000 (offer price), but if another buyer’s offer is higher, you will pay an amount of $1,000 (increase increment) more than the highest offer up to $115,000 (maximum purchase price). (Excluding closing costs, etc.)

·   Your offer price, the increase increment and maximum purchase price are all variable and set by you. Agents use a specific form for this!

§ If your escalation offer is selected, the seller must show proof of the other offer that determines your purchase price.

·         Contingencies

o Home-sale contingency – do you have to sell your home first to buy the next house. (Does the seller need time to find new housing too?)

o Inspections  

§ Amount of inspections

§ Length of inspection period (typical 10 days+/-)

§ Asking for repairs or waiving right for repairs

§ Waiving the inspection and buying “AS IS”

o Appraisal (required by lender)

§ Appraisal Waiver

·   You can agree to pay the full amount of the contracted price, even if the appraisal comes in below the purchase price.

·   Cap the difference – pay up to $$$ above the difference in appraisal and purchase price.

·         Seller paid buyer’s closing costs.

o Pay for your own closing costs associated with your loan/title work.

o Seller paying your costs reduces their bottom dollar and can be a determining factor in accepting an offer.

o Ask the seller to pay for things that are customary.

·         Closing date – how long do you (and your bank) need to close on the purchase.

·         Possession

o Immediate at closing vs giving FREE days after closing – typical is up to 30 days after closing.

·         Home Warranty

o Seller or buyer can pay for a warranty (average cost is $460-600) or you can waive the warranty.

·         Appliances or personal property – what stays with the house at closing.  Avoid asking for items the seller hasn't already offered to include with the sale.

·         Earnest Money Deposit – Provide a good faith deposit (upon acceptance of your offer, earnest money will be deposited in a trust account)

·         Title Insurance (can be written into fine print of contract)

o This can be a seller or buyer expense and is not customary in Logan County.

o Your agent can provide a copy of the handout “Why Title Insurance” for more information.

·         Title Company / Location of closing - will the title company come to you or do you need to go to them.  Flexibility of hours - do you need something outside of 9am-5pm?  Ask your agent for options.

 

Below is "A Buyers' and Sellers' Guide to Multiple Offer Negotiations" presented by the National Association of REALTORS® in 2005.  Most of the information still applies, however, offers over asking price are now more common.