How to Navigate a Multiple-Offer Situation When Buying a Home

This article was written by Sally Forster Jones and originally appeared on the US News website. You can read it in its original context here.

The real estate market is competitive right now, especially in larger markets like Los Angeles and San Francisco. A lack of inventory over the last several years has pushed prices higher and created a challenging environment for buyers who are often up against five, 10 or even 20-plus buyers all bidding for the same property.

For buyers who are just entering the market or for those who have lost out on one or several properties, here are a few tips for putting your best foot forward and successfully navigating a multiple-offer situation.

Work With a Professional and Know the Market.

Working with a real estate professional who is experienced and who is an expert in the market can be a crucial factor in determining whether you will be on the winning or losing end of a multiple offer situation.

Follow what is happening in the market. Are homes selling over asking price? Are seller’s underpricing to encourage multiple offers? What are similar properties selling for? An experienced agent, who you trust, can help to determine appropriate value based on the current market trends and can assist in negotiations and advice throughout the process.

Come In Strong Upfront.

If you know, or suspect, that you’re entering a multiple-offer situation, you’ll want to come in strong from the very beginning. Some buyers try to come in low initially as a negotiation strategy; however, if the property is priced well and is expecting multiple bidders, you may not want to risk having the seller disregard your offer immediately for not being a serious contender.

Many agents suggest their sellers counter all of the offers in a multiple-offer situation, but that decision is ultimately up to the seller. They may choose to counter all offers, they may only counter a portion of the best offers, or they may decide to choose an offer after the initial submission with no counters at all.

One of the most important factors when a seller is considering multiple offers is their belief that the chosen buyer is serious about buying the property, and that they have the ability to meet the terms and close the sale. One of the best ways to do this is to come in strong right from the start.

Come In Clean and With as Few Contingencies as Possible.

Make your offer as clean as possible and package everything to be submitted together in a coherent way. You don’t want the seller or their agent to have to chase you for paperwork, signatures or proof of funds.

Unless you’re paying all cash, it may be difficult or impossible to come in completely non-contingent, though there are ways to make your offer more appealing.

If you need financing, are you able to put more money down? Is it possible, or are you willing, to inspect the property prior to having an accepted offer so that you can come in with no physical inspection contingencies? Talk with your agent about what works for you so that you can come in with your strongest possible offer.

Be Flexible With the Seller’s Needs.

It sounds simple, but many agents and their buyers don’t take advantage of this simple step. Another easy way to make your offer stand out above the others is to have your agent find out what terms the seller is looking for and meet those needs.

For example: Do they want a long escrow period because their next home won’t be ready yet? Are they requesting a leaseback? Do they want to close quickly because they have already purchased and closed on a new property? Price and financing are not always the number one concern to a seller, so meeting their other terms is another way to make your offer more attractive.

Create a Personal Connection. Can a personal letter really work? The answer is yes, depending on the property, adding a personal touch to your offer can have an impact.

If the home you are writing on is a new construction or remodel being sold by a developer, a personal letter may not hold as much weight as the offer amount and terms. But for someone who is selling the home their family grew up in, there is often a strong emotional connection.

You definitely can’t deny the emotional involvement of residential real estate. A home is an incredibly personal purchase and for a seller, letting go can be a difficult process. A personal letter to the seller letting them know how much you love their home and how much you’ll enjoy it and will take care of it may be just the edge you need to overcome another prospective buyer.

Taking the time to write a thoughtful note also shows your dedication to the purchase and ensures the seller that you are a serious buyer.

Don’t Get Too Caught Up in the Bidding War.

It’s easy to get caught up in the process when you’re vying for a property with 10 other buyers. Try to stay level-headed and make sure that you are completely comfortable with your offer and terms.

Talk with your agent and be sure that you’re not over-bidding just to win the property, only to feel you’ve overpaid once you enter escrow. You want to come in with your best offer possible, as long as it still complies with your needs and goals.

Get in Backup Position.

You’ve done everything you can. You came up to your highest price and your best terms and you still don’t get an accepted offer.

If you’re one of the top contenders, the seller may offer you a backup position. As first backup, you are first in line to get the property at your final offer terms if the first buyer falls out of escrow or does not perform. If you still want the home, backup position can be a great option.

Stay Positive.

It can be incredibly frustrating to buy a home in a competitive marketplace. Inventory levels are low and prices are high. It’s normal for buyers to lose out on several homes before one sticks.

Sometimes it takes a few times around to fully understand the process and what is necessary to win in a multiple-offer situation. Working with a professional who you trust and respect can help the process feel less daunting.

Give yourself a break if things get too overwhelming. It can be emotionally draining to lose out on a home you had your heart set on. Give yourself time to reset before taking the plunge again. Stay positive, focus on the big picture, and keep your end goals in mind.

A lot of sellers right now are all excited about the thought of receiving multiple offers on their home, thus driving up the sale price. This sure sounds like a good deal, but there is one real deal breaker lurking – the appraisal.

The appraisal is a tricky thing. If your buyer is getting an FHA loan, that appraisal will stick with your home for the next six months. This means, if it comes in low, that will be the appraised price for any other FHA buyer for the next six months. If you lose the buyer because of the low appraisal you need to either lower your price or find a buyer with conventional financing or cash. A buyer with a conventional loan may also run into a low appraisal but it will not be stuck with your home like an FHA appraisal.

Do you have other options if the appraisal comes in low? You sure do! You can keep that buyer and just lower your price to the appraised value. The buyer may be able to bring more cash to the table, or you may have a combination of those two options.

Because of the low inventory levels, buyers are ending up in multiple offer situations all the time but that does not necessarily mean your home is worth more money.