Winning in Multiple Offer Situations
In a very active market, and especially in a seller’s market, where there is a limited supply of houses compared to the number of potential buyers, most sellers are likely to receive multiple offers on their property. The Silicon Valley real estate market is once again an extreme case of this situation: the inventory of available houses is very low, and demand is very high. Buying a house is already a complex and stressful process: understanding and being fully prepared for the multiple offer process is the only way to avoid even more confusion and frustration.
Of course if there are several people competing for the same house, you are unlikely to win if your offer is not the “best” in the eyes of the seller. The real question becomes: what makes an offer the best offer? Here are the key points to consider in order to prepare yourself.
First, ask yourself if you really want this property. The process is way too complex and stressful to just “kick the tires” with a half-hearted offer. Save yourself the second-guessing, disappointment or heartache. Save your energy for when you really want the property: you will need it.
Since you will eventually see a property you really want, be sure you are 100% ready to make an offer quickly. You and your agent must have reviewed your real decision criteria and all the financing details well in advance of even the first visit. Time will be very short to decide and execute your plan. You might only get a few days to visit the house and the neighborhood (more than once), to make your decision, and to put an offer together.
Forget the concept of getting a great “deal”. When 5, 10 or even 20 potential buyers are competing, the winning offer will most likely not be under the listing price. Depending on the specifics of the house, be prepared to bid higher than the asking price, sometimes significantly.
In order to determine how much to offer for a property you are interested in, discuss with your agent at what price you will not be disappointed to lose the bid. Your agent must arm you with facts that substantiate the likely final selling price. Recent comparables are absolutely necessary to set a winning offer price.
Even though the price you are offering is by far the most important factor in the seller’s decision, it is not the only one. It is called a seller’s market because the sellers are in the driver’s seat. They want and expect an offer that really commits you to buy if they accept it. This means as few contingencies as possible if any. This means a fully pre-approved loan (typically valid for only 60 - 90 days), not just a pre-qualification. This can also mean no appraisal contingency: once again, it is vital that your agent has provided you with the real market data to know what the market value of the property really is. This also means putting down a significant earnest money deposit as part of the offer. This might even mean no inspection contingencies: this is why your agent will make you read the thick binder of “disclosures” before writing an offer.
Understand that, in multiple offer situations, the seller has the right to make multiple counter offers, in effect creating an auction-like situation, and reserving the right to accept any of the remaining offers after one or more rounds. Once again, you will need a safe guide through this exotic jungle.
Finally, remember that every property, every neighborhood, every transaction is unique and of course you are a new buyer. The relative importance or relevance of the general principles listed here will vary greatly depending on the specific circumstances, location, and condition of the property. Arm yourself with the best facts to handle this situation. Try not to let emotions make the decisions for you, or worse, prevent you from making a decision. You can win even in the toughest market environment: just be prepared and trust your realtor to help you!