How To Win In A Multiple Offer Situation?

It is a scene that has become all too familiar to Denver home buyers over the last several years… You see a home listed online for sale on Friday and it is the home of your dreams and fits your budget.  You view the home in person over the weekends and fall further in love with it.  You decide that you are ready to submit an offer.  You reach out to your real estate agent and he or she reaches out to the listing agent only to find out that the agent already has several offers on the home and is expecting more.

There are numerous ways to write a strong offer that appeal to sellers in multiple offer situations.  Let’s review a few:

High Cash Offers are more Appealing in Multiple Offer Situations

Ok.  Let’s get this out of the way – highest price and cash are king!

Obviously, the first thing most sellers look at is the offer price.  And really who can blame them?  Everyone wants to get the most out of their major real estate assets.  So yes, in most cases the best thing you can do is write the highest offer you are comfortable with.

In addition to price, sellers and their agents also tend to prioritize cash offers over ones with loans.  A fully cash offer implies financial security and the ability to overcome any potential financial issues that could arise through the home closing process.  While loans are guaranteed by reputable banks and hypothetically should be seen equal to cash, the reality is they are not.  Another issue is that loans are tied to the appraisal value of the home and thus issues can arise if there is an appraisal gap.  An issue that cash buyers could easily overcome.

The Ability to Close on the House

Aside from price and cash, what sellers want most is the assurance that the deal will close.  No one, especially a seller with multiple offers in on hand, wants to go into an agreement that falls have it fall out at a later date and have to go back on the market. Here are several reasons for that mindset:

  1. They continue to own the home until it is closed and may have to pay an additional mortgage payment or two, which can cost them thousands of dollars.
  2. The other potential buyers who submitted offers may have gone under contract for another home while the seller’s home was off the market.
  3. Re-listing a home that was previously under contract is sometimes seen as a problem or stigmatized home.  Buyers are often wary of homes that fell out of contract and tend to make assumptions about their prices and condition. Therefore, these individuals may be more emboldened to submit a lower offer the second time.

So, the key is to submit a strong offer that gives the seller assurances that it will close. Oftentimes, this can be the winning factor for an offer even though it is not the highest price.

Appraisal Gap

An appraisal gap occurs when the appraised value of the home falls below the agreed-upon purchase price of the home.  In this case, the buyer and sellers may have to renegotiate the purchase price or terminate the deal.  Appraisal gaps are much more common in multiple offer situations where buyers are fighting amongst themselves to submit the highest offer.

An appraisal gap allows you to get in front of this potential problem.  Essentially, a buyer can pre-emptively offer to cover any appraisal gaps up to X amount.  This gives the sellers assurance that no matter what the appraisal comes in at, the purchase price value matches the appraisal price and/or gap.  It also eliminates a potential scenario where buyers and sellers fall out of contract.

Limited Inspection Objections

It is common for buyers and sellers to fall out of contract during the inspection process. It is the buyers’ first chance to get a professional inspector to provide a detailed review of the home, and inevitably issues arise.  Oftentimes, buyers simply get cold feet or ask for things that the seller is not willing to fix.

Again, the goal is to write an offer that gives sellers the confidence that you will close. Therefore, buyers often mention that they agree to only object to health and safety issues or things that will cause more than $500 to fix in their initial offers.  These details signal to the seller that you are a serious buyer and will not object to every issue the inspector may discover.

Closing Date Flexibility

A final tactic used by skilled buyers’ agents when writing an offer is to discuss the closing date with the sellers.  Before I submit any offer, this is something I ask every listing agent., “Is there a specific closing date your sellers are looking for?”

A flexible closing date can be a huge value add in a buyer’s offer without actually costing them any money.  Here are a few reasons why a seller may want or need a specific closing date.

  1. They are already under contract to purchase their next home and would like to align closing dates to avoid paying two mortgages.
  2. They have NOT found their next home and would like some time to search for a new property after closing and continue living in their current home. This is called a rent back where sellers continue living in the home for a specified time at a specified rate as tenants to the new buyers. In addition, it allows them to submit non-contingent offers.
  3. They want a quick close.  Perhaps this is a vacant rental property and they are simply ready to sell and move on.  In this case, every day that they are waiting to close, they are paying a mortgage without receiving rent., This can potentially cost them thousands of dollars.

As you can see in all of the situations listed above, a drawn out or mis-timed closing date can cost sellers money. , Agreeing to a closing date that fits the seller’s ideal timeline is a clever way to strengthen your offer. You are practically SAVING the sellers money rather than simply offering more money.

Submit a Non-Contingent Offer

I saved this one for last because I find it to be the most obvious, but also often the most difficult one to overcome.  A contingent offer is one that requires your current home to be sold in order for a buyer to purchase the home.  This is a common obstacle in real estate as few people are financially stable enough to own two homes at once.

From a seller’s point of view,  contingent offer means that there is a huge potential obstacle that is completely out of their control.  The sale of their home is fully contingent on a completely different set of buyers, financing conditions, inspections, appraisals, and other factors listed and not listed above.  If for any reason that contract falls out, they are also out of contract.  As you can imagine, a seller is very likely to consider a non-contingent offer over a contingent offer in a multiple offer situation even if it is a lower offer price.