Q. How can I compete if there are multiple offers?
A. Many buyers are finding themselves in multiple-offer competitions in our current market.
When inventories of homes for sale are low and interest rates are also low, buyers can expect to run into competition. Even in slower markets, the best listings at the best prices can generate more than one offer.
Some buyers shy away from multiple-offer competitions for a variety of reasons. They may be afraid of overpaying. They might have lost out before and don’t want to go through the agony of defeat again. Granted, a multi-bid encounter increases the anxiety level of the home buying experience. But, if you are successful, you have the benefit of knowing that you’ve brought a home that was high in demand.
The key to avoid over-paying in a multiple-offer competition is to have a good grasp of current market values in the area. To develop this expertise, look at a lot of listings. Then, follow up with your real estate agent to find out what these listings sold for. It’s also helpful to know how many offers there were.
Buyers who haven’t done their homework may not have a sense of how much they should offer when there is more than one offer. If you haven’t educated yourself about selling prices, you may feel uncomfortable offering significantly more then the asking price even through this may be precisely what you need to do.
One thing you can do is write a letter, to be attached to the offer, telling your story. Usually the sellers have an emotional attachment to the property and they want an idea of who will be living there. You might even want to include a picture of your family.
It helps to work with a real estate agent who has intimate knowledge of the area in which you want to live. He or she can educate you about the listing and selling prices as you spend time together looking at listings. Some buyers find it helpful to take notes and keep a file of listing flyers.
In general, the offer that wins in a multiple-offer competition is the one with a combination of the best price, the shortest closing and the fewest contingencies. A contingency is a condition that must be satisfied before the transaction can close. Typical contingencies are for inspections and for the buyer’s financing. Preapproved buyers have an edge because they don’t need a financing contingency.
Some buyers are choosing to waive contingencies in order to make their offers more attractive to the sellers. But, it’s risky to waive a contingency if in fact the contingency must be satisfied for the transaction to close.
For example, an appraisal contingency makes the contract contingent on the property appraising for the sale price for the purposes of obtaining a mortgage. If the property appraises for less than the sale price and you don’t have the protection of an appraisal contingency, your deposit could be at risk if you back out of the deal. If the appraisal comes in low and you choose to proceed with the transaction, you’ll need to make a larger down payment to make up the difference between the appraised value and the sale price.