In a hot real estate market it’s common for a home seller to receive multiple offers to purchase the property. Competition can be fierce so here are some tips to make sure your offer makes it to the top of the pile.
Price: When multiple offers are expected, don’t plan on low-balling your offer. This is the time to put your best foot forward, so offering something lower than list price won’t even get the attention of a seller. With multiple offers the home price will be escalated much higher than the price listed in the MLS. Knowing this, you may want to start off by offering slightly higher than the list price. For example, if a home price ends in a “9” (i.e. $549,000), you may want to make your initial offer price be $550,000.
Escalation: Price escalations should be expected in mutliple offer situations. Make sure your escalating factor is a substantial number that beats the competition and is appealing to the seller. Warning: Don’t offer more than you’re willing to pay because you’ll be bound by the escalation clause. If your escalated offer is accepted and you back out you could be in default of the contract.
Earnest Money Deposit (EMD): Your EMD signals to the seller you’re serious about the transaction and you won’t default on the contract. It’s an amount of money that will be credited towards you at settlement. When there are multiple offers your EMD should be 5-10% of the offer price.
Home inspection contingency: Sellers don’t like to see home inspection contingencies, especially when there are multiple offers. They usually take a pass on an offer that includes one. I recommend getting a pre-offer inspection. That way, you know about any home defects before you make your offer. If the inspector finds substantial issues you don’t want to deal with as the new homeowner you can take a pass on submitting an offer.
Financing contingency: Lenders today recognize the importance of removing the financing contingency to be competitive in mutliple offer situations. Lenders now offer programs that allow buyers to get full loan approval (as opposed to just pre-approval) before an offer is submitted so the financing contingency can be removed. Not all lenders offer these programs so be sure to ask your REALTOR for a recommendation.
Appraisal contingecy: While risky, especially in escalated situations, removing the appraisal contingency will make your offer more appealing to sellers. The drawback? If the home does not appraise for the contracted amount the home buyer will be required to bring the cash difference to settlement.
No home sale contingency: The reality is your offer won’t be chosen if you include a home sale contingency. If you have a home to sell before you can buy a new one get your current home under contract (preferably sold) before you begin your new home search.
Free rent back: Many times a home seller needs the funds from the sale of their current home to purchase their next property. To do this, sellers prefer an early settlement with the chance to stay in their current home for short period of time before they close on their new home. This is called a “rent back.” In essence the seller becomes a renter in the home they just sold. To make an offer more appealing home buyers can offer free rent backs to the sellers of the property.
Write a letter: Homesellers want to know the people moving into their home will enjoy it and care for it as much as they have over the years. Write a short letter to the homeowners telling them how much you appreciate the home, what features you find most appealing, and how much you will enjoy the home.
A sellers market is tough for home buyers but the upside of home ownership outweighs the stress of a multiple offer situation. Be strategic when putting together your offer and you’ll be handed the keys to your new home before you know it.