One Property, Multiple Buyers – How to Win a Competitive Offer Situation

The real estate market has been experiencing unusual circumstances. Low inventory and low interest rates have created a highly competitive marketplace. This year my business partner, Blake Westhoff, and I have found ourselves in competitive offer situations in all price points and on all types of properties. We put our heads together to give you some tips on how to best craft a winning offer.

 

Purchase price is often the first thing that comes to mind with a competitive offer scenario. While the purchase price is certainly important, there can be many more opportunities to make an offer stand out. When determining the offer price, we look at comparable properties, talk with agents who have had similar properties recently go under contract, and look at market trends. Are homes selling for 5% or 10% over? These trends can help inform the offer price you choose. Working closely with a Realtor that is familiar with the specific market and has good relationships with other Realtors is critical to success.

 

Escalation clauses are an increasingly popular way of raising the purchase price while protecting the buyer from overpaying. When an escalation clause is used, the addendum works off the competing offer, escalating the purchase price based on the other offers that come in. The buyers select an escalation amount (an amount to be paid above any other written offer), typically between $2,000 and $10,000 dependent on the price of the home, and “escalates” at that amount to a maximum price cap. This is a great way to get ahead of the other offers, without offering significantly over the competition.

For added transparency, the seller must share the competing offer used to escalate the winning offer. There are mixed opinions, however, about using escalation clauses, mostly due to the possibility that a buyer is tipping their hand to the amount they are willing to ultimately pay. At the end of the day, it is up to the buyer what they are willing to spend.

 

Highest and best is terminology that may be sent back to a select group of offers if the seller does not want to work from escalation clauses. In many cases, this is a best case for the seller. They are not required to disclose the content of the offers in-hand and will often flush out the highest purchase price and most favorable terms.

 

Earnest money is a good faith deposit to secure the property. Though there are many ways for a buyer to retain earnest money if the sale falls apart, more earnest money tends to convey greater intent. Making the earnest money deposit large and/or non-refundable is a great way to say you are committed to the transaction and confident you will follow through until closing. Non-refundable earnest money guarantees the seller walks away with something in the event they need to go back on the market.

 

Financing is an important part of the equation. Sellers are going to consider how secure the financing for each offer is. Liquid funds, like cash, are often the most desirable to sellers. However, that certainly isn’t an option for every buyer. Including a mortgage pre-approval letter is standard for offers, letting the seller know the buyers have had a credit pull and provided income and tax returns.

Waiving the bank appraisal or committing additional down payment funds in the event of a low appraisal can make an offer almost as good as cash in today’s market. Keep in mind, this scenario requires the buyer to pay the difference between the purchase price and the appraised value, out of pocket.

 

Inspection: There are several ways a buyer can remained protected and still get into position with the inspection contingency. Getting a pre-inspection is a great way to obtain as much information as possible before submitting an offer and prevents committing to a property with underlying issues. The pre-inspection eliminates one of the most impactful contingencies of the transaction and removes the likelihood for the seller that the deal will fall apart after mutual acceptance. Most listing agents are stating offer review dates that allow a few days to schedule an inspection prior to offering.

If there isn’t an opportunity to do a pre-inspection, we recommend shortening the inspection timeline to only a few days, taking the property off the market for the shortest amount of time if something major comes up. Offering a pass/fail response to an inspection is another way to protect the buyer, but lets the seller know the buyer won’t be nickel-and-diming over small repairs. We always recommend getting a home inspection, so finding a way to get it done and have it work in your favor is critical.

The last way to make a power move regarding a home inspection is to waive the inspection entirely. We are seeing this quite often, especially on homes in good shape, but it’s a move that give us indigestion as Realtors. Do not take lightly the impact that purchasing a home without an inspection can have down the road if serious issues are uncovered after closing.

 

Closing and possession date may not seem like a make-or-break portion of the contract, but it can play an especially important role in making an offer stand out against the competition. Flexibility and communication are key here. The buyer’s agent should communicate with the listing agent to see the seller’s preference. Do they have a certain deadline to make another purchase or do they need extra time to get moved out after closing? Working with the seller here to make their transition as painless as possible can be the difference between similar offers.

 

These are the situations where an experienced and communicative Realtor becomes vital. If your perfect property hits the market, there is a way to make it happen!

 

See this article in the April 2021 online edition:

April 2021

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