How to handle multiple offers on your home.
We are about to put our house on the market. In our area, multiple offers are pretty common and I was wondering if you have any advice for handling them. I’ve bought and sold several homes so the process doesn’t really scare me, but I’ve also never had multiple offers.
Thanks in advance for the advice. I’ll hang up and listen.
Eager in Evanston
Ahhhh….multiple offers. It’s like watching little Ralphie drifting off to sleep on Christmas Eve. Big smile, a warm bed, and visions of the Red Rider BB Gun dancing through his head. It’s truly the fantasy of every home seller in the world. We will talk about how to create them another day, but for now, let’s talk about how to handle them once you have them.
I cover the entire state of Ohio and right now it is almost entirely a seller’s market. This means, for the uninitiated, that there are fewer homes than there are buyers. Some people call it “low inventory”. Sellers call it “a dream come true.”
When this happens, multiple offers go from fantasy to reality. The trouble is that most sellers and many agents have no idea how to handle, much less maximize, these opportunities. How ’bout we break this down and hand you a blueprint, shall we?
Incidentally, do you know what motivates a buyer more than just about anything else in the entire world? Give up? OK…here goes:
Nothing…and I mean NOTHING…motivates a buyer like seeing another buyer.
Not sure what it is other than some sort of Maslow hierarchy-of-needs thing, but I’ve seen completely rational buyers walk into an open house and remain all aloof. They’re like “yeah this place is ok…I guess.” To the casual observer, they look like just another tire kicker who is being nosy.
Then (dramatic music) in walks another buyer or couple who seems a little excited about the house. Next thing you know, it’s like the annual “Running Of The Brides” dress sale at Filene’s Basement. At that very moment, the stage is set for our “multiple offer” battle to begin.
But, before we begin I need you to direct your attention to the front of the cabin for this important money-saving message about emotions and negotiating:
Emotions are expensive. When emotions run high, prices run even higher, but emotions are for buyers and suckers exclusively.
Ever watch that scene in Trading Places where Dan Ackroyd and Eddie Murphy are at the stock exchange and the whole place is freaking out…except those two? Guess who walks away with the “yacht and private island” money? Yep. The ice-in-the-veins guys, that’s who. This will be you, but you have to pay attention (and keep reading).
The only way to keep the emotions out of this is to be very objective about the offers and that means you need to define what it is you truly want out of this deal. Before even looking at the first offer, you need to put pen to paper and be super clear about the things that would make the deal a winner.
Price isn’t everything. A high price offer could be masking a lot of ugly terms underneath all that fine print. Your best bet, once you have defined what’s most important to you, is to pull out each term from each offer and put them on a side-by-side comparison. I like to use a spreadsheet, but a simple sheet of paper or whiteboard will do just fine. Here’s a free example.
If you have 4 offers, make something with 5 columns. The first column will have all the terms like price, financing, inspections, closing costs, commission, net money, etc. and these terms should be ranked by order of importance to YOU. Start filling in the blanks for offer #1. Things will become much clearer as you start to lay this out on one page. You may even have a clear winner.
If you do happen to have an offer that is just head-and-shoulders above all others, my best advice would be to stop and take that offer. But Glen…Why on earth would we do that???? I’m glad you asked.
When buyers find out they are in a multiple offer situation, roughly half will raise their offers and the other half will walk away.
That means you have a 50/50 chance of your best buyer exiting stage right. I believe it’s even higher than that.
Let’s say I’m your best offer buyer (you should be so lucky). If you told me I was potentially in a bidding war after I gave you a solid offer–I would tell you to piss off.
Wanna know why? Because not only did I give you a great offer, chances are, I know it’s a great offer. I would see you as a greedy game player and then, that’s right, the aforementioned off-pissing. I would be a vapor trail before you could say, “But wait….” and I’d be on to my next deal. Roll the dice if you like, but don’t shed any tears if my warning comes true.
For the sake of argument, let’s say there is no clear winner. In that case, continue to fill in the blanks on your offer comparison sheet.
Here’s a quick breakdown of the most common terms in a real estate purchase contract:
- Price – pretty obvious.
- Earnest money – how much the buyer is depositing with their agent as “good faith” down payment money.
- Home sale contingency – whether or not the buyers have to sell their house to buy yours.
- Seller-paid costs – seller money contributed to the buyer to help with their closing costs.
- Title insurance – usually 4 figures and could be paid by buyer or seller depending on the wording.
- Financing type – cash deal, conventional loan, FHA, VA, USDA, etc.
- Financing status – whether the buyer is prequalified or pre-approved or if they are paying cash, proof of funds. Remember, anyone can offer anything, but if they can’t pay you, it sort of doesn’t matter now does it?
- Inspections – what inspections, if any, do the buyers want before they move forward – aka 2nd round of negotiations.
- Personal property – what things are you leaving behind like appliances, furniture, lawn equipment, etc.
- Appraisal contingency – what happens if the appraisal comes in low?
- Home warranty – if it’s included, it’s usually paid by you and the cost should be disclosed as well.
- Closing date – when you get your money.
- Possession – when they get their keys.
- Addenda – what other documents are attached and therefore part of this agreement.
- Termination – all the many many ways you or your buyer could get out of this contract legally and what happens.
- Time limit – the deadline to respond before the offer turns into a pumpkin.
- Commission – how much of your money goes to the agent(s) involved.
- Seller net – how much money, after everything above plus your regular closing costs (mortgage payoff, deed prep, closing fee, tax prorations, utility escrows, etc.), will you walk away with at closing.
Once you have all these details laying before you on your new offer comparison sheet, you can start to make some sound decisions. Start by ranking them and throwing out the shitty offers.
Price: Do not confuse the offer price with your net “walk away at closing” number. If you have a good agent, they will prepare this with your offers. If you don’t, there are any number of state and county-specific seller net sheets available on the interwebs for free. In particular, watch the title insurance costs, county transfer taxes, and property tax prorations. Even good agents get lost in the wilderness of these subjects. Do your homework and avoid last-minute surprises.
Seller-paid closing costs: These days it’s not at all unusual to find a little clause buried in the contract specifying that the seller will “contribute” up to $XXXXXXX towards the buyer’s closing costs. If this clause is in here, keep in mind that you aren’t actually paying their closing costs.
In reality, the buyer is choosing to finance their own closing costs. In other words, by asking you to fund their closing costs, they have less out of pocket at closing. In return, you are simply going to ask for more money for the house so…no matter how you slice it, you’re going to get what you want at closing and the buyer will simply roll their closing costs into their loan.
If this confuses you, don’t feel bad. Just send me a separate email and I’ll break this down for you if the situation comes up. glen@ByOwnerCoach.com is the fastest way to find me, but you already know that…
Cash is king: In my humble opinion, if they are cash, you need actual “proof of funds” like a bank statement or letter from a bank showing they have the cake or no deal. If they provide this, I would be hard-pressed to ignore this offer.
Cash offers have the significant benefit of knocking out the appraisal trap. Anyone willing and able to pay cash for a property is probably not that concerned with the appraiser’s opinion. One less hurdle for you to jump and the odds of making it to the closing table go up dramatically.
All contingencies, whether financing, inspections, sale of another home, or anything else, are just another off-ramp for your buyer to exit the contract with no penalty. Oh, and if you think you’re getting the earnest money–think again. 99% of the time, the earnest money goes right back to the buyer, but that’s another long answer so we’ll skip that for now.
The top two real estate deal killers are, in no particular order, financing and inspections; so don’t take these contingencies lightly.
Financing: I would personally take a lower cash offer over a higher financed offer. Financing kills a lot of deals and the hell of it is that it’s not usually the bank or underwriter that causes the problem. Many times it’s the buyer.
Let’s say you’re a banker. You just pre-approved me for a $200k loan. I call you two weeks after making my offer with the worst case of buyer’s remorse ever. I’m in over my head and not sleeping because of the many panic attacks I’m having. In short, I tell you I can’t afford to do this.
What was I thinking? Regardless, you as my banker are probably going to help me find a way out of this deal. Once you are on board, the deal is dead. All I would have to do is call you and say that I heard I was about to be laid off and that would be that. Bye-bye contract–back on the market we go.
Another thing, if the financing is FHA, VA, or USDA, your buyer now has a “bonus” off-ramp from your deal. Conventional loans only look at value. Each of these loan programs is contingent on value AND condition. The appraisals are subject to a list of minimum property standards.
It’s not usually a problem and you can get ahead of this by clicking on the links I’ve conveniently included. See whether or not you will have any issues with the appraisal process before you accept the offer.
Again, do your homework–forewarned is forearmed; knowledge is power; luck favors the prepared and all those other clichés.
Inspections: “No inspections” means you’re more likely to close and with more money in your pocket. Inspections are huge deal killers and if they don’t kill the deal, they certainly make it worse for you.
The post-inspection process is, in reality, a chance for the buyer to get another bite at the negotiation apple. Even if you believe your house is in tip-top shape, you should rank an offer with no inspections ahead of an offer with even one inspection.
Most contracts these days even contain a little clause that allows the buyer to escape the deal with their earnest money after an inspection. In many cases, the buyer does not have to provide any copies of the inspection or even a reason why they are canceling. Not cool…
Home sale contingency: I hate these and frankly wouldn’t consider one in a multiple offer situation. Trust me on this one. Throw it out or ask them to remove the contingency and provide proof they can still buy. On second thought–just throw it out.
Closing and possession: This refers to the closing date and the date you have to move (aka possession). These are extremely important dates unless your house is already vacant. If you live in the house you are selling, these issues are huge.
If you are giving up the keys at closing and the deal doesn’t close, you have put yourself in a bind. You are now living somewhere else–presumably not for free–and are likely counting on that money. Now you have two homes and no money.
If you’re giving up possession at closing, make damn sure you have some strong assurances that this deal will actually close or that you will be handsomely rewarded if it doesn’t. Maybe instead of the usual earnest money rules, the buyer will agree to a non-refundable deposit. Food for thought.
Usually, 30-45 days for closing is plenty. If they are asking for a much longer time, that could work for you depending on your situation. It could also be a warning sign that they are needing to sell their home before buying yours. If that’s the case, get something in writing from their lender showing they are approved either way.
Personal property: If you don’t want your appliances and furniture, they are essentially worthless to you. However, to the buyer, they represent less cash out of pocket and less to move. Win/Win.
If, on the other hand, you want your appliances then you will need to weigh that into your eventual “walk away” net number. Either way, for negotiating purposes, you should give your buyers the impression that you will need to buy new ones if you leave these behind. This will strengthen your bargaining power.
Commission: Why did I bring this up? Because about 20% of today’s sellers and pretty much all of my clients are in the business of negotiating buyer agent commissions. You need to get in on this.
If you’re FSBO or a Flat Fee seller, you are familiar with this process of negotiating the buyer agent’s fee. If you are not, I will explain. Here in the good ole US of A, by law…All real estate commissions are negotiable. Let me say that again:
By law, all real estate commissions are negotiable.
In other words, just because “everybody pays 3%” to the buyer’s agent, doesn’t mean you have to. Commission, just like the price or the appliances, is just another term of the deal. Therefore, when you are dealing with an offer from a Realtor, feel free to fire back a counter with the following clause: “Buyer broker fee to be 2.5% at closing” or “Buyer broker fee to be $5,000 at closing”.
I know…mind blowing. It happens all the time. Agents don’t love it and some will even cry, “you can’t do that”, but I’m here with my 20-year pedigree to tell you otherwise. Click here…I dare you.
As they say, if you don’t ask then the answer is always no. If the deal is tight, you might as well take a shot. I would also do it in writing. Why? Because an agent explaining to a buyer that their fee is standing in the way is, well…pretty freaking awkward for the agent. So I say, game on!
*Asshole clause: I realize this appears to violate my “Emotions are expensive” rant above but stay with me here. I keep a special room in my private hell for assholes and their close cousins, the dickheads.
I will walk away from a deal if the buyer or the agent fits into one or both of these categories. It’s not because of the emotional thing. It has to do with my extensive experience with these special people.
The relationship “love” between buyer and seller is at its peak when the offer is signed. Starting at that moment and continuing until closing, it gets worse by the day. If a buyer or agent starts out in the above category, don’t think for a minute they won’t turn into full-fledged terrorists as you get closer to closing.
I’ve watch families and best friends become mortal enemies from contract to close. If they are jerks at the offer, they will not smell any better by closing.
Additionally, these people are far more likely to sue you for something stupid that doesn’t go their way after closing. Water heater breaks 3 weeks after closing and you’re getting a certified letter about small claims court.
Do yourself a favor and eject them immediately from your multiple offer party. You’ll be glad you did.
Responding to multiple offers:
So now you have all of the offers you’re keeping and they are all laid out on your offer comparison sheet. Now what? Time to respond.
Once again, before we get started, I’m going to tell you that as a member of the world you need to be fair and show respect throughout this process.
Just like above, I’ve walked away from deals more than once because the other party was disrespectful or playing games or just plain rude. I won’t deal with people like that and neither will most serious buyers.
You do not want to be that person. Your best buyers can smell dishonesty and shenanigans from 100 miles away. Even if you “get away with it”, remember that Karma is a ruthless bitch and always evens the score in the end. Don’t mess with her and don’t mess with your buyers because…
…If it’s not a good deal for everyone then it’s not a good deal.
Keeping that in mind, let’s continue. The rest is pretty simple.
Alert all buyers: You can and should tell all buyers that there are multiple offers. Some will walk and you need to know that going into the process. The ones who stay are probably very interested and will almost always pay more.
To do this you simply contact each buyer, usually by email, to let them know you received their offer. Thank them and then let them know you are going to consider it along with all the other offers. That usually gets their attention. Be polite, but don’t mince words. You have multiple offers and theirs is one you are considering.
Set an offer deadline: While alerting all buyers and agents to the existence of multiple offers, let them know when you will be making a final decision; usually 12-24 hours from now is plenty. This will give them time to let you know what they plan to do. Their choices are simple: Increase their offer, leave it as is, or withdraw and walk away.
Ask for “Highest & Best”: Once you’ve given the offer deadline, instruct all parties that you are requesting they put their best feet forward for the final round. You may reveal the top terms if you like, but that also has its risks. You never know what a buyer will do so be careful before you start broadcasting. Personally, the most I would do is reveal that we “have offers above list”, but I wouldn’t put a $ amount out there.
Honor your word: If you have an offer deadline and have asked for the highest and best offers then don’t screw around after that. Once the deadline has come and you’ve considered the offers, let the winner know they’ve won and let everyone else know you’ve selected another offer. Again, thank them for playing and tell them you’ll get in touch if anything changes.
Do not try to leverage anymore or hold a “final final round” of offers. If you pull this stunt you will expose yourself as the greedy bastard you are and risk having all your buyers walk away and get what you deserve.
It may net you a few bucks more if you’re lucky, but the world doesn’t need people like that and if you’re one of those people you shouldn’t be reading my stuff anyway–it’s not for you. I like awesome people who are fair and fun.
Sorry about that…OK back to business.
Once you’ve responded to everyone, you could attempt to identify a primary backup offer if you like. Just contact the 2nd best buyer and tell them that they came in second. To be clear, you are not trying to renegotiate–you’ve accepted another offer. You are just allowing them to be first in line if the other deal falls through for any reason.
I would give them some incentives and a giant back door to walk out in case they find another house. In the end, it’s unlikely that a buyer would want to be in that situation, but if they haven’t found another place they love, who knows? They may go for it and you get a little more security.
I’d only let my first buyer know that I have a back up if they start getting squirrelly. Otherwise, keep it to yourself. Once it’s clear your first buyer is going to close (all contingencies removed/pending), let your backup buyer know so they can move on to the next house.
Well, there you have it. You are now more than equipped to navigate the shark-infested waters of multiple offers and you can do it with style and integrity. You may have developed a connection to one or more buyers, but if you follow my steps here, you won’t feel nearly as bad for everyone when it’s all over.
In the end, you maintain control. I’ve had several sellers over the years who have taken the “lower” offer because they simply love the buyer. As I said, emotions are expensive, but hey…it’s your money and last I checked this is still America so you get to do what you want.
Best of luck and please let me know how things go. I promise you’ll get through this just fine!
Keep the questions coming and I’ll do my best to answer them all as quickly as possible. Click the “Ask Glen” button at any time. I read and reply to every email so don’t be afraid to ask me anything.
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