Multiple Offers: What Are the Best Strategies for Buyers and Sellers

I Represented the Buyers - there were over a dozen offers.
If you are a home buyer this year in North Redondo Beach and have made an offer on a property you most likely are very familiar with the concept of "multiple offers". As a Realtor who represents Buyers (and Sellers), I know how absolutely frustrating and confusing it can be to get involved in what is often perceived as a blind bidding war with no clear guidance as to how to get the home you want. A lot of this is further confounded by the fact that often the listing agent has priced the property substantially below what they expect it to sell for in the hopes of eliciting multiple offers from buyers and in the process boosting their own "stats" (more on that later).

C.A.R Home Seller Multiple Offer Survey
The California Association of Realtors (C.A.R) recently published this graphic (to the left) of a home seller survey they did and the results are, as I like to say, quite illustrative.

As would be expected 77% took the highest offer. Not surprising, money talks and every seller wants to sell for the highest price. About 50% of the time, the Buyers with the best (strongest) mortgage qualifications were selected. Also not surprising and as a listing agent I've often advised my sellers to select a slightly lower price if the financing was demonstrably better. The offer without contingencies was selected 39% of the time and "all cash" secured the house in 23% of the multiple offer situations. Sometimes time really is money and in 14% of multiple offer situations, the buyer who could close the fastest was selected.

C.A.R did not share what I would have found to be interesting such as did cash and a shorter close time trump the highest offer. Or did the person with the highest offer also offer all cash. What I've found is that rarely is it ever just one factor. Literally everything comes into play.

So whether you are buying or selling a home in Redondo Beach CA, here's some suggestions that you may find useful in dealing with the multiple offer real estate transaction. Let me preface everything with a simple fact that is often overlooked: in a multiple offer situation the Seller does NOT have to take the highest offer. It's not quite eBay (yet). So be strategic and make an offer that if you were the seller you would be likely to accept.

BUYERS

Before you put in your initial offer it is extremely important for your agent to contact the listing agent and find out whatever they can about what's going on. Questions to ask are:
  • When are offers being reviewed?
  • When will the Seller respond?
  • Do they have any offers already?
  • Are there terms that are important to the Seller (ie long or short escrow, lease back, etc.)
  • Are there any Seller contingencies such as finding a replacement property?
  • If there will be multiple counters will they all be responded to?
  • Is the listing agent representing a buyer also?
I could go on but don't want to advise other agents as to how to do their jobs or give all my strategies away (lol). For that I'll have to represent you! FYI, the pictures of homes you see on this post are ALL Redondo Beach properties I sold either representing the Seller or Buyer. Sometimes my buyer clients won out in multiple offer situations and we were not even the highest price!

My Listing on Harkness Lane - Sold with Mutilple Offers
Other than having a strong agent who is well connected in the local market, the next most important thing a Buyer can do to prepare themselves to be competitive in a multiple offer situation is to have extremely strong financing. That means being pre-approved, not pre-qualified, by a direct lender (one who can fund your loan and perform). You also want to make sure that the loan officer will be available to speak with the listing agent and will promptly return their call.

Whether there are multiple offers or not, most experienced listing agents will place a call to the loan officer and find out if the assets, employment, source of funds, DTI, etc have all been verified and whether an underwriter has looked at the file or if they only have DU approval. On my listings when I hear that all the lender has done is run the buyer's credit and taken their word for the income, well I'm not too impressed or comfortable.

Its also important to put your best foot forward initially. If you can put down more, write it into the offer. If you can close quicker (I have lenders who can do 21 days), write it into the offer. If you are flexible about closing, indicate that as well. And, corny as it may seem, include a cover letter and picture about you and your family to personalize things. Write what you like about the property. Sometimes if all things are about equal, the little touches can make a difference.

A common question I often get is why does anyone care how much the Buyer puts down. Hold that thought and read below in the Seller advice.

I represented the Buyer of this 3 on a lot Townhouse
As Buyer you may be asked to respond to a multiple offer with your "Best and Final" purchase price. In other words, bidding against yourself. You may also be asked to remove certain contingencies such as the inspection or appraisal contingency up front. There are specific ways to handle the former and as to the latter, it is a case by case situation how you respond.

The only hard and fast advice I can offer is that if the feedback you get from your agent is that the multiple offers are already at or above the list price, it's probably not a good idea to "see if they'll take less". That is, unless you are offering all cash, no contingencies and can close in an extraordinarily short time or offer some other amenity to the Seller that the seller finds attractive.

A common question I often get is "How do we know that they really have multiple offers?" Good question. I'm sure it has happened but I have never received a multiple counter when the seller really didn't have multiple offers. Recently the counter offer forms were changed and for a listing agent to use the multiple counter offer form without actually having multiple offers, I imagine  would be some kind of serious violation.

Here's the ironic part of all this. After a Buyer's multiple counter is accepted, the next emotion is often Buyer's Remorse expressed as "Did we overpay?" Don't worry, the appraiser will figure that one out for you.

SELLERS

I represented the Buyers of this detached rear unit 2 on a lot
Congratulations, you have multiple offers. Now what? While the natural response is to try to push the price up as high as possible, you also need to focus on the terms the Buyer is offering and most important, what do you need. For example, how you already identified a property to move to or do you need a leaseback? How much time will you need, long or short escrow? Can you sell your house "as-is" and not have to do any repairs? Terms can have financial implications as well. For example, I was able to get a FREE 30 day leaseback on one of my listings for the sellers.

Other than financing, the most important thing you can look at is what terms are the buyers offering, what do you know about the buyers, and who are they represented by? Your agent will have to guide you on those topics. In other words, you really can not consider the price apart from the terms. As I mentioned, selling Real Estate is not quite eBay yet (even with multiple offers).

Here's an extreme example of terms you would not want to agree to. I recently received a full price offer on one of my listings. That was good. Problem is the buyers would not agree to remove loan contingencies or agree to liquidated damages if they defaulted. In other words, the buyers could cancel at anytime up to the date of close of escrow with no penalty even if my seller moved out and rented or bought a new home! Not really something anyone in their right mind would agree to, Especially in a Seller's market. But the price was good.

Golden Hills Tall & Skinny SFR
So it is important that your agent carefully review with all all the terms and conditions of the offer and not just the price.

The big questions, which I alluded to above, is why do sellers care how much the buyer is putting down? What I am specifically referring to is not the earnest money deposit (EMD) but the down payment and how much is being financed.

Here's an example of why that matters.

In a rapidly increasing market the appraisal might very well be an issue. Particularly if you want to sell for more than any of your neighbors did. Most loan programs will only require the buyer to have 80% loan to value. So, if a buyer is putting down 30% or more you have that much more room for the appraisal to fall short and the loan to go through. Here's an example. The purchase amount is $750,000 and the buyer is putting down 30% ($225,000) with a loan amount of $525,000. Let's say the appraisal comes in really low at $700,000. There would still be more than 20% LTV and most lenders would most likely fund the loan.

The Buyer could very well say, however, that the property did not appraise for the purchase price and cancel even if the lender will do the loan. That's why if you think that your appraisal may not come in and the buyer is putting down 25% or more and you have multiple offers, you can and should ask the buyer to remove the appraisal contingency at the outset. It's also why we ask to see proof of funds to close and why a stringer buyer may often be chosen.

The one thing I can say with certainty is that as long as inventory remains low, multiple offers are here to stay.