On January 15th of this year, one of my listings in Wrightsville reduced their asking price resulting in three showings over the next five days. One of those buyers would write an offer, but their financing would fall through by February 1st. After reactivating the listing, the market unleashed a total of 9 showing requests over the following five days! The buyer activity for this house was not a unique experience among my other homes for sale. Ask my wife how much she saw me this past week! The local market here has seemingly seen a recent increase in buyer traffic, and buyers are often facing multiple offer situations.
There’s no magic formula to winning the bid. I’ve seen multiple offer scenarios where everybody offered less than the asking price, and I’ve seen multiple offer scenarios where buyers blew the asking price out of the water. In a multiple offer situation, I ask my buyers to consider the following:
- Increase your offer amount
While obvious, their are multiple ways to go about this which are worth discussing. Aside from simply offering more, a buyer could include a “price escalation addendum,” which states the buyer’s offer price, but stipulates that the buyer will increase their offer by a stated increment above the best competing offer up to a maximum sale price. For example, the buyers offer is $200,000, and they’ll beat the best offer by $1000 up to a maximum price of $215,000. Price escalations could be a whole blog topic on its own. Buyers should consult their agent or attorney on the nuances of this addendum. If getting the home to appraise for the sale price is a concern, the buyer might consider paying a portion of the price in cash in order to alleviate these concerns.
- Decrease your closing cost assistance
There seems to be a common misconception in my experience on what closing cost assistance means. Briefly stated, closing cost assistance is assistance in paying THE BUYER’S closing cost. There is no entitlement nor inherent expectation for a seller to contribute their assistance. If a buyer offer’s list price, but asks for $5,000, this is not a full price offer. This assistance eats into the seller’s net proceeds and should be considered to be limited in order to be competitive. Not only is it mathematically more money to the seller, but a buyer able to pay their own closing costs communicates the strength of the buyer’s financial position which means the buyer may have more flexibility in their purchasing options, and it may mean that the buyer is less of a risk as a borrower. When one of the seller’s greatest fears is the deal falling through, this can gain favor, which brings us to our next consideration…
- Increase your good faith deposit (aka earnest money deposit),
If the buyer is willing to put more money down as a deposit, the buyer has more skin in the game. If a buyer has more skin in the game, they are less likely to default at risk of losing that large deposit. A larger deposit communicates the strength of the buyer’s financial position like decreasing the closing cost assistance.
- Limit the scope of inspections,
There are many ways a buyer can limit the scope of their inspections. In the state of Pennsylvania, the standard PAR agreement of sale allows the buyer to elect a multitude of different inspections: whole house, wood destroying insect, radon, water quality, septic, and more. To a seller, less inspections means less of a chance for the deal to fall through. If a buyer is reluctant to waive inspections, I have had buyers accept the condition of any one deficiency found if the cost of professional repair is less than a determined dollar amount. I have also had buyers accept the condition of the home for the first determined-dollar-amount of professional repair for a deficiency. The idea is to communicate to the seller that the buyer is not looking to nit-pick, and they are simply looking for major issues. Consult a real estate attorney on how to properly structure this.
- Consider the seller‘s timeline,
Sellers can have different preferences when it comes to transacting and the timing. If the house is vacant, the seller is likely to want to settle as quickly as possible to reduce their carrying costs. Or perhaps the seller needs time to find their next home. Or there may be other personal considerations. Buyers should communicate with the seller (through their agent or attorney if applicable) to know the seller’s preferences, and gain favor by working with them and showing their flexibility.
- Write a love letter… c’mon– you can do it!
This may not apply or it may be less effective when the seller is an investor, but for many sellers, selling a home is not just a financial consideration, but an emotional consideration. These sellers may have raised their kids in this home. There can be a deep emotional connection to a home, and therefore the jerk who submitted the best offer but asked their agent to highlight everything that was wrong with the home in justification of their price may not feel like a worthy buyer to the seller. I advise buyers to write a letter to the seller introducing themselves, and express a heartfelt appreciation for the home and the opportunity to make an agreement to purchase the home. I have seen this work many times first-hand!
Good luck in your bidding!