With home inventory levels being significantly low coupled with the interest rates being historically low, newly listed homes are being sold within a few days or even hours of being listed! These newly listed homes are often receiving multiple purchase offers, which is excellent news for sellers.
Having multiple offers, on the other hand, is not excellent news for buyers. It is paramount for a buyer that is getting involved in a multiple offer situation, that they have a great real estate agent representing them that has experience with multiple offer situations.
Losing out on a house can be heartbreaking and frustrating for a buyer, so make sure when hiring the “right” agent to work with, find out what they do to help their clients win in multiple offer situations!
Get pre-approved to win in a multiple offer situation!
Get Pre-Approved, Not Pre-Qualified First things first, there is a major difference between pre-approval and pre-qualification! Understanding the difference is extremely important.
A pre-qualification is when a lender looks at a buyers overall financial picture based on what the buyer tells them. In most cases they will also look at the buyers credit information to make sure their credit scores are in line with the current mortgage guidelines. The lender will then issue a “Pre-Qualification” letter, subject to verification of information that you provide once you apply for your mortgage. Unfortunately, on occasion a pre-qualification letter is issued to a potential buyer without verifying the information provided by that buyer. It is possible that down the road they are declined once the information they provided is verified.
A pre-approval is typically a little more involved but is much more desirable when it comes time to negotiate on a home. Getting a pre-approval includes a lender pulling a fact data (tri-merge) credit report, collecting pay stubs, bank statements, W-2’s, etc. and actually confirming employment statuses (referred to as a VOE or “Verification of Employment”). Most pre-approvals are as good as a mortgage commitment, and are generally only subject to a bank appraisal being done on the subject property.
In a multiple offer situation, being pre-approved is extremely important and often times it makes a huge impact on which offer a seller may choose to work with.
Explore Different Types of Financing There are many different types of mortgage options available to a home buyer and each one is unique in their own way. The type of financing that a prospective buyer is going to be obtaining can impact a sellers decision during a multiple offer situation. For example, traditionally FHA (Federal Housing Authority) Loan and VA Loan guidelines are more strict than a conventional loan program. This can include many guidelines, such as, ratios for debt to income, amount of down payment, or the amount a buyer can receive in seller concessions.
Additionally, FHA and VA appraisers will traditionally site more repairs than a conventional loan appraiser due to more stringent program guidelines. If a buyer who is approved for a FHA or VA mortgage, can be approved for a conventional mortgage program, it can be very helpful in a multiple offer situation. This gives the buyer the option to select which type of financing they would obtain, should the seller accept their offer.
Have Fewer Contingencies A buyer has the option to make a purchase offer contingent on several different items, some that are more common than others! In a multiple offer situation, waiving or not including as many contingencies, can make one offer more desirable than the next. While it’s not recommended in most cases to waive the opportunity to perform a home inspection, waiving a home inspection is very appealing to a seller.
The purpose of a home inspection is to ensure a homes current state is safe for the buyer. It’s extremely common that a home inspector will find safety concerns within a home which can cost a seller hundreds or even thousands of dollars in repairs. By waiving a home inspection, the seller is now “off the hook” for any repairs that would be requested after an inspection of their home. In most instances, sellers may not even be aware of safety issues within their home.
Work with the sellers to help win in a multiple offer situation!
Work with the Sellers Understanding what the sellers plans are is important in a multiple offer situation. A great real estate agent should first find out either from the seller directly or from the sellers real estate agent, what the sellers plan is. Once this information is obtained, the purchase offer can be structured in a way that is more appealing to a seller. Do they want a quick closing? Do they need some time to retain possession and rent back? These are all things that are important and evaluated when a seller looks at multiple offers.
Make a Large Deposit A buyer who is buying a home must provide with an accepted purchase offer a deposit, known as an earnest money deposit or good faith deposit. The amount of the deposit is variable. In a multiple offer situation, the larger the deposit can indicate to a seller the serious intent of the buyer to purchase their home.
Make a Large Down Payment Putting a large percentage down towards a home can create an advantage for a buyer in a multiple offer situation. It shows a seller that the buyer has been disciplined to save a large sum of money to put towards a home, which can indicate the strength of that buyer. A larger down payment also can help things move along quicker at the buyers lender and increase the likelihood of a mortgage commitment being issued.
Make a strong offer to win in a multiple offer situation!
Make a Strong Offer In a multiple offer situation, don’t low ball! It’s heartbreaking and frustrating to a buyer when they lose out on a home, but expecting to win in a multiple offer situation while low balling is silly. If a buyer is in love with a home and there are multiple offers, the buyer needs to know, they will have one chance and one chance only at getting that home. A seller is likely to review all the offers and either accept one of them, or choose one of them to “work with.”
Buyers that are in need of seller contributions (aka seller concessions) need to be aware that it is a “two-way” street. A buyer that needs $5,000 in seller contributions should not expect to offer $5,000 below the listing price (assuming it’s priced well) and also get the contribution from the seller, especially in a multiple offer situation! If a buyer absolutely needs seller contributions, they should consider offering above the asking price, but keeping in mind that the home still needs to appraise for the purchase price.
An offer $10,000 over the asking price with $10,000 in contributions from the seller is a greater risk to a seller, as far as the home appraising, than an offer at asking price with no seller contributions.
These 7 tips can all have an impact on whether a buyer has their offer accepted when there are multiple offers. It’s inevitable that in a multiple offer situation, there is going to be at least one loser. The most important tip of all, which isn’t listed above, is that a buyer has a great real estate agent working on their behalf. They should know what things to do in specific situations to put their clients “best interests first.”
This article was written by Rochester Real Estate Blog