How to make your offer beat a competing offer
Multiple offer scenarios are very common in the current seller’s market. Many buyers are faced with trying to beat out other buyers when offering on a home. One of our recent listings had 14 offers, and we’ve had buyers competing with as many as 36 offers on some of the popular listings within the Madison area.
Here’s a few tips to help your offer edge out the rest:
Offer a strong price: Of course, this is one of the most important factors to sellers. A strong price can get you the property, but it’s not the only factor. Don’t think in round numbers either. Consider the round number that everyone else may offer and bump your price up a hair more. Additional, ask your agent about using an escalation clause. This is similar to a proxy bid where you say, I’ll pay $XXXX above a competing offer up to a maximum of $YYYYYYY. This has become a fairly common practice, but you’ll want an experienced buyers agent to help with this scenario.
Minimize contingencies: When a seller has multiple offers to consider, the offer with the fewest hurdles can look most desirable. We’ve had sellers accept an offer with no contingencies for $15,000 less than the offer with the strongest price. Assurance that the sale will go through is sometimes more important than a few thousand dollars.
Inspection tolerance: The next best thing to waiving contingencies is having a big tolerance in them. When it comes to inspection, many buyers are writing in that they will accept several thousand dollars’ worth of defects reported at the time of a home inspection. This gives the buyer some security that they still get an inspection and would still be somewhat protected if something major came up. It also gives the seller assurance that the buyer won’t nit pick all the little things.
Appraisal tolerance: Like the inspection tolerance, an allowance for the appraisal to be low will also add to your offer strength and security for the seller. In a rapidly inflating market, sometimes the appraisal falls short of the sales price based on the recent comparable sales. While you’d rather not overpay, sometimes this is the only way to win the deal.
Have strong financing: Low down payment specialty programs always seem to have more challenges associated with them. For example, a recent FHA loan required the seller to get an unpermitted basement permitted and code checked. A recent VA loan required a termite inspection. Sellers aren’t fond of these additional hurdles. Cash offers are always strongest, but conventional financing with a strong down payment is the next best thing. If you have a family member that’s willing to back you with cash (if your loan were to fall through), you could offer cash but finance the property anyway. Note proof of funds is generally required for cash offers.
Flexible closing date: Find out the seller’s situation and preferred closing date. If you are willing to make the timeframe convenient for the seller, some of the other terms may become less important. Maybe the seller has another house lined up and wants to close as quickly as possible. Perhaps the seller doesn’t know where they are moving yet, and they still need a couple months to search. Maybe the seller prefers to close on the sale but rent back for 2 weeks so they have time to move. Explore all these possibilities, and make it as convenient as possible for the seller.
Whatever you do, in a seller’s market like this, you must think like the seller. Find out as much as you can about the seller’s situation. What would look most desirable to you, if you were in their shoes?