Properly handling multiple offers ensures that your home sells quickly and for the most money and the best terms. Let’s look at how you can handle multiple offers when selling a home…
When you are selling your home, you need to be prepared for a multiple offer situation. A multiple offer situation means that 2 or more buyers are making an offer on your home.
Remember that your listing agent works for you and should advise you about how to handle multiple offers. Ultimately how you handle multiple offers and negotiating is up to you.
The Negatives of Multiple Offers
As a seller, you may think this is great since it could mean a bidding war. Multiple offers cause some sellers to think their house was priced too low and they should wait for more offers.
Some people think multiple offers are a trick used by real estate agents to make more commission. Or to get potential home buyers to pay more…
While this is possible, I do not think it is very probable. The majority of experienced agents do not want to risk their license or reputation!
The NAR Code of Ethics has several sections dealing with multiple offers and it says:
Standard of Practice 1-6
REALTORs® shall submit offers and counter-offers objectively and as quickly as possible. (Adopted 1/93, Amended 1/95)
Standard of Practice 1-15
REALTORs®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORs® shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. (Adopted 1/03, Amended 1/09)
These are just 2 of the many rules we must follow. Breaking the Code or any laws could result in very serious financial repercussions for Realtors.
Experienced Realtors also know that some buyers will refuse to get involved in a bidding war. Some buyers may react emotionally and others will not.
If several buyers get swept up by their emotions in a bidding war, it could mean the contract price will go too high. When I say the contract price is too high, it means the home will never appraise for a price that is above market value.
A seller in a multiple offer situation must be careful that the contract price will appraise. If the contract price is greater than the appraisal amount, then the buyer’s mortgage may not get approved.
If this happens, the price can be renegotiated. The seller must agree to renegotiate the contract price to meet the appraisal but does not have to.
Or the buyer can use additional cash or they may walk away using the financing/appraisal contingency clause. Most of the time, buyers do not have additional money to use if the home does not appraise.
If the home does not appraise, the buyer can walk away AND they can get their earnest money back. Sellers may want to get the earnest money but the time you spend arguing about it is time your home is off the market.
Multiple offers often mean the contract will fall through and the home must go back on the market! According to Inman News, almost 50% of multiple offer transactions fail to close!
Some people think multiple offers only occur when there is limited inventory or a home is under priced. Multiple offers also occur when a home is correctly priced and marketed properly.
If a property is desirable to one buyer, then it will be desirable to other buyers! My guess is that most of the complaints about fake multiple offers are from disgruntled buyers.
Multiple Offers and Greed
The downfall of many people in life or when it comes to selling a home is greed. A multiple offer situation is a chance to get more money or better terms and contingencies.
A multiple offers situation is not a reason to get greedy! Like I said before, some buyers will walk away from a multiple offer situation.
If you get greedy about the price or overly demanding about the terms and contingencies, buyers may walk away! You should treat ALL potential buyers how you would want to be treated!
If one of the offers is acceptable, you don’t need to counter the other offers or asking for highest and best.
It is your choice but this often leads to buyers and their agents getting upset. Your agent will simply tell the other agents and buyers that another offer has been accepted.
Do not be tempted to ask for highest and best simply to get more money. This can backfire on you and leave you empty handed!
Multiple Offers and Contingencies
There is more than just the price to consider when looking at multiple offers. The terms and contingencies are also very important considerations!
If a buyer offers to waive contingencies like the home inspection, then that offer beats another offer for the same price that does not waive the inspection. When a buyer waives the inspection contingency, it means they are willing to take the home without the need to negotiate any necessary repairs found during inspection.
Do not think that a buyer not getting an inspection means you do not have to disclose latent defects with the home. You will need to fill out the required property disclosures to CYA.
Any other issues that could be present will become the responsibility of the buyer to deal with after they buy the home.
Something else to consider is the cost of any repairs as a result of the home inspection. Some agents like to use the home inspection as a second round of negotiating so they can get another price reduction.
If the home inspection does uncover any needed repairs, the buyer may ask you to pay for them or reduce the price. You can always allow for an inspection that is acceptable to the buyer but include in the contract that you will not make any repairs or concessions.
Sometimes, there are lender required repairs that are uncovered by the appraisal. The buyer will not be able to get a mortgage unless these repairs are made.
Failing to do lender required repairs means your home will NOT sell since the buyer cannot get financing!
Which Offer Is Highest?
How do you look at multiple offers and decide which one is best? You need to look carefully at the price of each offer minus anything the buyer is asking for like seller paid closing costs or down payment assistance.
Do not think that the highest offer is always going to be the best offer! I understand that the highest price is going to look very tempting…
But that doesn’t mean it is the best offer! Just because someone offers more does NOT mean they will actually be able to get it to close!
Look at the Pre-Approval Letter. How current is it? Is it from a reputable mortgage lender or bank? Remember that a Pre-Approval Letter is NOT a guarantee that the buyer will get the mortgage!
An offer from a Pre-Approved buyer can be stronger than an offer from a buyer who hasn’t made any financing arrangements. If you are serious about selling your home, shouldn’t the buyer be serious about showing they are able to buy your home?
Look at how much down payment the buyer is using. Buyers that put more down may be considered less risky to the lender and more likely to be approved for a mortgage.
If the buyer is offering cash, look at the Proof of Funds. Does it appear to be legit? Is it in the name of the buyer on the contract? How old is it?
If a buyer submits an offer without either a Pre-Approval Letter or a Proof of Funds, they must include one for you to even consider making a counter. Legitimate buyers make legitimate offers…
Offers should ALWAYS include a Proof of Funds or Pre-Approval Letter!
Don’t make the mistake of thinking the highest offer is always the best offer! More money may not be the best option if a lower offer is for cash.
Cash offers are better because of fewer possible hiccups but this does not mean you must take less than the property is worth! Taking a little less from a cash buyer can be a better option since buyers needing a mortgage can be a gamble.
If an offer has a financing/appraisal contingency, it means the home must appraise for the contract price. A cash offer, on the other hand, does not normally mean you must worry about an appraisal.
One tactic you may encounter is an “escalation clause”. This is when a buyer will offer to pay a specific amount above the highest bid to a maximum price.
For example, an offer might say “we offer $500 more than the highest bid but no higher than $150,000”. This is a very good technique for multiple offer situations that prevents buyers from paying more than they must.
Which Offer is Best?
Remember I said highest and best offer! The best offer may not always be the highest offer.
Asking the buyers for their highest and best offer gives them a chance to increase how much they are offering or remove some of the contingencies.
A seller can accept one of the offers, counter all the offers or only the offer that is closest to the price and terms the seller’s wants. I think sellers should ask buyers to submit their highest and best offer if there are multiple offers.
Home buyers sometimes include contingencies in their offer that allow them to back out. These contingencies may include getting financing, the home inspection, clear termite letter and that the home appraises.
The fewer contingencies in an offer the better! Contingencies can be “loopholes” that buyers use to get out of the contract.
In some areas, there are forms to make sure the buyers understand there are multiple offers. Ask your agent if this is true in your area as it will help show the buyers that this is a legitimate multiple offer situation.
Like I said before, some buyers will walk away as they don’t want to get into a bidding war. Other potential home buyers may leave their offer as it is without any changes.
If there are inspection contingencies, then you need to consider how much you are willing to pay for or credit to the buyers.
Multiple Offers and the Closing Date
You also need to look at all the dates. If an offer is for more money but it will take longer for the buyer to close, then taking less money may be better.
A buyer who’s willing to close faster can be better than one who needs longer to close. If you need or want to move soon, a quicker closing date is going to be better.
If you need more time to move, a buyer that is offering a later closing date may be better for you. Either way, you will need to decide which dates work best for you.
Remember that if the buyer is using a mortgage, the closing date may be sooner or later. Some lenders can get things done sooner and some take longer.
Multiple Offers and Love Letters
Some potential buyers will include a “love letter” about what they like about your home and why they want to buy it. You cannot ignore facts and logic but you should consider the motives of the potential buyer.
This is an attempt to pull on your heartstrings BUT sometimes, doing the right thing means listening to your heart.
The Take Away on Multiple Offers When Selling a Home
Multiple offers are nothing to freak out about if it happens when you are selling your home. Multiple offers can be great but don’t let your emotions overrule logic!
You must remain calm and focus on which offer will best satisfy your goals and needs. Look at all of the offers, including price, contingencies, terms and the dates.
Your Realtor will be able to help you determine which offers will net you more and what the various contingencies and terms mean. After reading this article, you know how to deal with multiple offers on your house and select the best offer for you!