What Buyers Need to Know About Multiple Offer Situations

Inventory is low, interest rates are low, and home prices are rising in most price points. According to the President of Maryland REALTORS®, John Harrison, in July 2020 there were only 1.6 months worth of inventory available, compared to 3.5 months in July 2019. The number of overall units sold increased by 8.1% over 2019, and the median sale price grew by 7.3% also. This is definitely a seller’s market overall. Here’s the full report by county.

In price points under the jumbo loan limit particularly, buyers can expect to find themselves competing against multiple offers on well-priced, good condition homes.

Writing an offer with a buyer in this kind of market feels like jettisoning cargo from an airplane. What parts of this contract can we get rid of and still make it to the end alive? Let’s look at how buyers can be successful in this kind of market.

It’s the Money, Honey

For many sellers, it really does come down to two things; the dollars they net and the assurance the money will show up on time. So, yes, you can offer a higher price for the property, but you can also offer to pay for items the seller would normally cover, like closing costs, or even broker commissions. Paying for closing costs instead of raising the price nets the seller roughly the same money in the end, and can save a financing headache later if the home would not appraise for the amount you’re willing to pay. Remember, appraisals look back at what has happened in the past, while the market is moving forward and upward.

You can also make the extra effort to show you have the ability to purchase the home no matter what hurdles come up during the transaction. Start with offering a higher deposit, showing that you have cash on hand which allows you flexibility. Consider making that deposit non-refundable to express your commitment to the deal.

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Reduce the Uncertainty

Once a deal is struck, and compared to the buyer, the seller has limited control over ending the contract if things seem to be going sideways. Ease the seller’s mind by reducing the contingency periods. While I know it’s common to waive the home inspection and financing contingency in some exceptionally competitive markets, I could only advise a client do that in rare cases. Instead, make the inspection, survey, appraisal, or other buyer cancellation options as short and sweet as possible, to reduce the seller’s worry you’ll back out.

Don’t Throw Away Your Shot

In a busy market, you may only get one chance to make the best impression upon a seller. If your agent is telling you this is the field you’re playing on, listen to her. Make a great offer the first time around, not after you’ve already lost out on a few preferred homes.

And don’t expect you’ll have room to negotiate at this point. The multiple offer market is a game of throwing your hat in the ring and doing your best to make sure it outshines the others. Once you knock out your competition, then you’re in a one-on-one conversation with the seller and may have room to negotiate some items, such as repairs related to a hidden defect, or a price adjustment due to a low appraisal. Or you may find out later you both need some of the same concessions anyway, such as a later closing date.

Sweeten the Deal

Maybe it’s not all about the money for the seller. Sometimes the seller needs something else, like peace of mind. A seller may be worried about finding a suitable new home, being a buyer in a market just as tough as the one you’re facing. Or maybe the seller’s timetable, lack of cash, or limited physical capabilities make property repair requests overwhelming. This is where your agent can truly make a difference by talking with the listing agent to find any other common ground.

How about spending a little money to buy the seller a home warranty covering the transaction time period? Then the seller’s risk during the inspection will be limited to items not covered under warranty, and that warranty can be continued after your purchase for your own enjoyment.

What closing date does the seller really want? Maybe you can perform your contract responsibilities in 30 days, but the seller needs a little more time to say good-bye. Or maybe the ability to stay in the home rent-free for a month would help the seller successfully bid on a next home.

Consider where you’re flexible in ways that may appeal to the seller.

Pro Tips Matter

Take great care to select an agent who is experienced with busy markets and knows how to put together a compelling offer package, not just fill in the blanks on the forms. Your offer is being judged not only on the contract but also on the professionalism and reputation of your agent. Has your agent communicated with the listing agent in advance to create a relationship and to find out what’s important to the seller? Has she assembled a professional presentation clearly highlighting parts of your offer that may be buried in the details or confusing, such as the seller net proceeds, an escalation clause, or an appraisal guarantee?

Your choice of lender is important, too. No matter what the latest Rocket Mortgage tv ad claims, a preapproval letter from an automated online system is NOT the same as having cash in hand. And many buyers can’t or won’t be competing against cash offers anyway. What you CAN do is select a lender who is willing to call the listing agent and vouch for you, and to explain the preapproval steps you’ve already completed. Intake interview? Done. A credit check? Done. Copies of your bank statements and pay stubs? Done. Your lender’s bandwidth to make a phone call on your behalf speaks volumes about your preparedness to enter a contract.

Whatever your tolerance for competition is, be ready to hustle when you head out on a home shopping trip. You can choose which of the many strategies to employ based on your comfort, but having a buffet of options in mind in advance will at least make you an informed buyer.

It’s a busy market out there! If you need help navigating it, contact me.