Multiple offers strike fear, frustration and fury into the minds of just about any buyer who has fallen in love with the home they want to make theirs! Right now, with incredibly attractive interest rates and an extreme shortage of homes available for sale, sellers are in the driver’s seat as buyers seek to find their new home. In a hot seller’s market, buyers need to remain patient, persistent and calm in their search and just accept that multiple offers are currently a part of the process when looking for the best properties. But there are definite strategies to help improve your chances of winning! We looked at five strategies in our previous blog. Now, let’s look at five more strategies you can use today and give you a full arsenal of tools to choose from if you encounter a multiple offer situation – now or in the future!
Some sleuthing by your agent can often give you insights into what is important to the seller. Circumstances are never the same and appealing to a seller’s hot buttons can sometimes win them over to your offer. Closing date is often a sticking point for sellers. They are worried about being homeless for a few days and almost always want the closing date to be the same as the closing date of the new home they are purchasing. If that isn’t possible, look at a rent-back situation for a very short time to allow them the extra days or weeks they need to leave the property.
Another typical problem is possession time. “Immediate possession” is typically what a buyer wants – that can scare a seller because they may not have the ability to get everything out of the house before the actual closing. Allowing 12-48 hours for a seller to move out can calm their fears about the transition. Just make sure they continue carrying their homeowner’s insurance policy until they are completely out of the house.
In a hot market, a seller often hasn’t been able to find a home before their home has sold. Try to offer another 15-60 days for them to find their next home before setting the closing date on your purchase. It can be a good idea to put an end date to the extension to keep the sellers pushing to find that next home.
Flexible terms can be very creative – asking good questions about the seller’s situation and concerns can offer insights into making your offer more attractive. In one situation, a hobby farm seller was distraught over what would happen to the elderly horse they dearly loved. Our buyers loved horses and offered to keep the horse for the duration of its life and said the sellers could always visit! That term won the day!
WAIVE YOUR BUYER’S INSPECTION CONTINGENCY
A buyer’s inspection will give you excellent knowledge about the condition of the home – both good points and its warts. You also want to make sure the home is safe. Yet sellers are terrified of buyer’s inspections and fear the process will cost them thousands of additional dollars in repairs or cause the buyer to walk away after the seller’s have lost 7-10 days of showings to other potential buyers. While it isn’t a recommended step, if you are comfortable with what you see and maybe have some handy skills or access to skilled labor (for pizza and beer!), it might be worth considering dropping the inspection contingency. But if you waive the inspection contingency, know the seller is now “off the hook” for any repairs you may have requested them to do had you done the inspection. Keep in mind, if properly written, you can still do an inspection but give up the right to request repairs from the seller. By doing this, at least you will get advance knowledge of what issues you may need to address once you own the home.
In the alternative, you could also consider an “As-Is” addendum with your offer. Again, you may be giving up your right to request seller repairs. Either of these options requires some serious discussion before waiving the inspection contingency.
PAY YOUR OWN CLOSING COSTS
One of a seller’s biggest issues is paying for a buyer’s closing costs as a part of the purchase. In many cases, they have forgotten they also asked their seller to pay for their closing costs when they bought the home! A common request from buyers, particularly first time buyers, is to ask for a seller to pay 3% of the sales price towards the buyers closing costs. On a $200,000 home, that is essentially a $6,000 price reduction for the seller. And in multiple offers, that can be a deal-killer. A buyer can compensate for that $6,000 by increasing their offer to $206,000 but, if another buyer offered $203,000 and paid their own closing costs, it would still beat out the $206,000 offer.
Another option would be to ask for only 1% or 2% of seller paid closing costs and come up with the rest of the closing costs out of your own pocket. Minimizing a seller’s contribution to you closing costs as much as possible will always strengthen your offer. But, if the only way you can buy a house is to ask for seller paids, you may just need the patience and perseverance to keep on offering on houses until you finally win.
Exploring specialty loan programs for assistance in paying closing costs could also help overcome the seller paid closing cost obstacle. Please contact us for more information in this area – we are familiar with a number of different options.
LOOK AT A CONVENTIONAL LOAN
From a seller’s point of view, the most attractive loan a buyer can have is a conventional loan. Generally speaking, the appraisal for a conventional loan is considered the easiest appraisal for a house to pass. Why? Because a conventional loan usually has more stringent qualifying criteria for its candidates. The buyer approval requirements for FHA and VA loans are much less stringent but the trade-off is the appraisal criteria use for the house has a higher standard to meet. But qualifying for a conventional loan may require you to put off purchasing a home, too, while you improve your qualifying criteria – credit score, down payment, more income, less debt, etc. Some buyers do have the option of choosing a loan style and, in a multiple offer situation, a conventional loan will almost always beat another loan if everything else is equal.
Of course, if you have a bunch of cash, that is the easiest way to win in multiple offers! There is no appraisal and closing can occur in a very short time. Sometimes as short as a week!
FOLLOW WINSTON CHURCHILL’S ADVICE!
“Never give in. Never give in. Never, never, never, never—in nothing, great or small, large or petty—never give in, except to convictions of honour and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy.”
Buying a home isn’t quite going through World War II, but you can’t give up! Stay in the game – if you don’t play, you can’t win! Yes, it can be disheartening, frustrating and depressing but the thrill of getting the key to your own home is truly priceless! And getting that key won’t happen if you let those emotions eat you up and keep you from achieving your dream. In every offer, put your best foot forward with your offer. If it doesn’t win, then it wasn’t meant to be. You need to mentally move on, wipe off your “hard drive” and forget about the house. When you finally do get your home, with almost every client we’ve served, they said the home they bought was the best one for them of all they made an offer on!
Also, if you lose on a house, re-iterate to the sellers’ agent that you are still interested in purchasing the home if the winning buyer cancels for some reason. Buyers do cancel for various reasons within the inspection period – can’t negotiate successfully on repairs with the seller, house just has too many repairs for the buyer, the buyer gets “cold feet” – and when that happens, sellers agents will immediately go back to those who made an offer to see who might still be actively looking and interested!
In a multiple offer situation, buyers can often get crazy with their offer price and go $10-20,000 over asking price – sometimes even more! Their strategy is to make an offer the seller can’t refuse even when the buyers know their offer price won’t meet an appraisal value. The buyers are thinking if that happens, the seller will then be forced to lower the purchase agreement price to the appraisal value at no risk to the buyer!
To give the seller more peace of mind and make your offer more attractive, offer “appraisal insurance” to the seller in a specific amount. For example, if your offer is $10,000 more than a $200,000 asking price, you could tell the seller you will pay up to $5,000 of any “appraisal gap”. In this example, if the appraisal came back at $206,000, you would pay in cash at closing the $4,000 “gap” between the purchase agreement price of $210,000 and the appraisal value of $206,000. At the same time, you are limiting your exposure and asking the seller to assume some risk as well if the “appraisal gap” is more than $5,000. Once a seller understands the risk of the much higher offer actually meeting appraisal, your offer looks much more solid because you are sharing that appraisal risk with the seller! Keep in mind, you do need to have the cash available to offer this incentive to a seller. But, with due diligence and working with the appraiser, in many cases your offer price will meet appraisal and you do not have to cover the “appraisal insurance” and the seller gets an above asking price sale with shared risk. A win-win for everyone!
Don’t lose hope with a multiple offer situation! These strategies do work and, with creative thinking, you may be able to identify other ways to creatively set your offer up for success, too! Stay patient and persistent, don’t lose hope and you WILL know the thrill of getting that key to your new home!