The current housing market is facing unprecedented low inventory at a time when demand for home purchasing is high and interest rates are also historically low. The result has been non-stop multiple offers in many markets, especially in Connecticut. Just last week, we had a lively discussion on this topic lead by Beverly Walsh, Vice President of Sales and Sales manager of our Westport office. It’s important for home buyers and sellers to understand how the multiple offer process works. Here’s what you should know!
What are my options as a seller?
WAIT: You can hold off on responding to the offers while you wait for others.
ACCEPT, COUNTER, OR REJECT: You can also make one the following choices. Accept one offer and thereby reject all others. Counter one offer and reject all others. Counter one offer and put aside all others. Reject all offers.
REQUEST HIGHEST & BEST: You can ask for the highest and best offer. You would do this by instructing your listing agent to inform one or more buyers of the multiple offer situation and give them the opportunity to submit their highest and best offer by a specific date and time at which point you will reconsider all the offers.
The goal of requesting highest and best offers is to create a sense of urgency and encourage the highest and best offer from the buyers. However, the risk of doing this is that one or all of the buyers may walk away when faced with this situation because they do not want to be involved in a bidding war. Because the decision to notify buyers of multiple offers and to request the highest and best can have positive or negative results for you as the seller, it is your decision whether to do so, and you should understand the benefits and risks.
A key consideration to keep in mind is that any delay you allow in responding to offers, leaves the door open for your buyers to choose another home that hits the market or to simply change their mind and withdraw their offer. The competitive nature of this market is particularly stressful and emotional for buyers. So it is very important for you and your agent to be sensitive to and respectful of the people on the other end of the offers you receive and to have frequent, honest, and clear communication with the buyer agents during the process.
How do I evaluate the offers?
You should understand whether the buyers are aware of other offers so that you know if their offer has taken this competition into account. Your agent should explain the terms of each offer with you and how they impact your best interests. It will help you if they summarize the key elements of each offer including, price, downpayment, payment method, strength of the pre-approval or proof of funds, timing, inspection terms, contingencies, and flexibility. This will help you to compare them in terms of what is most important to you.
What can I expect as a buyer?
First, you may or may not be informed that there are multiple offers. Your agent can ask if it is not immediately mentioned, but it is up to the seller to decide whether to disclose this. It is also possible that your offer may not be confidential. Many sellers keep the offers confidential, but you should be aware that the seller is not obligated to do so, and it is their choice whether to or not.
How can I make my offer more competitive?
You have a number of variables to work with even though the price certainly carries a lot of the weight. Your agent can ask the seller’s agent what is important to the the seller, and this may provide some direction. Depending on your situation, you may be able to incorporate a number of options that can make your offer more attractive to the seller.
PAYMENT PERKS: If you are financing, try to put as much money down as you comfortably can as this will be perceived as a stronger offer. Make sure you have an ultra-strong pre-approval like the Certified Pre-Approval from William Raveis that verifies your financial documentation and runs your application through the first round of underwriting. This also allows you to close more quickly. If you can pay in cash, this is a plus because it saves time and eliminates the steps involved in the mortgage process. Consider offering more than the standard one-percent earnest money deposit or putting more than ten percent down at contract signing.
INSPECTION WAIVER: If you are a contractor or planning to do extensive renovations, you may feel comfortable waiving the inspection contingency or doing an inspection for ‘informational purposes only”, but if you do this, be sure to check for an in-ground oil tank! If you are a contractor bidding on an estate property, you might offer to empty the house for the sellers. If you are not prepared to spend money and time on unexpected issues, this approach is not recommended.
APPRAISAL GUARANTEE: You could offer to guarantee the appraisal, meaning that you are willing to put more money down toward your loan in the event the property appraises under the agreed-upon sale price.
ESCALATION CLAUSE: This is a statement in which you agree to offer a certain amount above the highest bid. There are some concerns with this approach, and some sellers are not accepting it, but you can call me, and I can fill you in on the details.
CREDIT: Another approach for tipping the scale in your favor might be to offer the seller a credit toward their closing costs.
LETTER: Many people like the idea of the “love letter” in which you write a compelling letter to the seller telling about yourself and why you love the home. This has been discouraged lately though, because it can easily violate discrimination laws. If you do choose to write a note to the seller, be sure that you are careful not to identify yourself in terms of family status, sex, disability, race, color, religion, or national origin because these are protected classes under the Federal Fair Housing Act. It is also recommended to run your letter past your attorney to be on the safe side.
If your offer needs to be contingent on selling your house first, this is a difficult market for that contingency to be competitive in, but I have a number of potential solutions for you. My goal is to find the right solutions to ensure a successful sale and the best possible outcome for my buyers and sellers in this and all other markets!
Give me a call to learn more or discuss your plans, and let me see how I can help. In the meantime, feel free to set up your own search and browse the markets you’re interested in, visit my website, or send a a note below.
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