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.