Bidding wars
As the real estate market has picked up, and in most parts of the Indy metro area, we've seen a shift toward a sellers' market, we're going to see more multiple offers. Sellers and buyers both have lots of questions of what happens when there are multiple offers. Sellers, of course, want to know how they can leverage multiple offers in order to get more money for their houses. Buyers, however, don't relish the idea of getting into a bidding war. Here is some information on what to expect with multiple offers and how they work.
Asking for final and best offers Typically, here is the scenario that occurs when there are multiple offers. Let's say a seller receives three offers for the house. The seller's Realtor will then contact the three Realtors representing those three buyers to let them know this is a multiple-offer situation, and the buyers will have a specific deadline to respond with their best offers. Sellers often will accept one of the "best offers," submitted. But don't think that just because you think it's your best offer that it won't be countered. Sellers always have the option of deciding to counter an offer, even if it's presented as a "best offer." As the buyer, you'll have to decide whether you want to accept the counter or move on.
Being first often doesn't matter Just because you submitted the first offer, it doesn't mean the seller can't consider other offers. In fact, a sellers may consider as many offers at a time as they receive, but they can only respond to one of them. It's up to the seller to decide which offer to respond to. Sellers will consider a variety of things when looking at an offer, such as the price, of course, but also the amount of earnest money that's being offered (1 percent of the purchase price is typical), whether the buyer is asking for closing costs or other concessions, the type of financing the buyer is going through (someone paying cash is a lot more attractive than someone putting down the minimum 3.5 percent and going FHA) and the closing date.
But, I don't want to be in a bidding war Who does? Well, the seller, of course, but no one really wants to get in a bidding war, because we know what that means, as the buyer, you're probably going to have to pay more than you originally had hoped for the house. It's your choice whether you want to submit a new offer and hope it's accepted, or decide that you're going to take your ball and try to find another home. Here's the thing, unless your initial offer is your best offer, then why not at least go for it, give your best offer, and see what happens.
Counters always carry a risk Let's say that you've submitted an offer on the home of your dreams, and the seller has countered that offer, and now you're going to counter back, because you want to see if you can get it maybe $1,000 less. You give the seller 24 hours to respond to your counter offer. Now, let's say that someone else has decided this is her dream home, too, and she's now submitted an offer on the house. The sellers haven't responded to your counter, and they still have 12 hours to meet your deadline. Guess what? The sellers has some options:
1. If that second offer is more than they had hoped for, they can tell you to forget it, and they can accept the second offer, just like that.
2. They can ask you to both submit your best offers.
3. They can continue to negotiate with you.
4. They can even ask for more time to respond to your offer, and then negotiate with the second offer to see how willing they are to play ball.
In other words, it's all in the seller's court at this point. That's why it's always important in a sellers market, to carefully consider whether countering an offer is in your best interest. Maybe in 2009, countering back and forth five times didn't seem so risky, but in today's market, countering can be a risk you don't want to take.
Highest offers aren't always the best offers I was working with a seller recently, and we received three offers for her house. We informed all three buyers that we had received multiple offers, and gave them an opportunity to submit their best offers. All three resubmitted their offers. One offer was a full price offer, but the buyer wanted to close and take possession in 20 days. Another offer was slightly higher than the list price, but the buyer wanted $3,500 for closing costs. The third offer was slightly lower than the list price, but it was a cash offer, and they could be flexible with closing and possession. The seller decided to accept the third offer. The house sold much quicker than she anticipated, so she didn't have a new house yet, and she decided having flexibility with closing and possession was of value. She also knew that cash offers carried value, as we didn't have to worry about the mortgage process and risk the buyers not getting approved.
It's not a full-price offer if you're asking for closing costs I often hear from buyers - we love this house, we don't want to risk someone else making an offer, so let's make a full-price offer. Then, they tell me they want the seller to pay $3,000 toward their closing costs. That's not really a full-priced offer. That's really a full-priced offer minus $3,000. If you want the house, you're going to be so sad if the house is sold to someone else, then you probably need to offer full price - that means making sure the seller is getting the full amount. So, if the house is listed for $197,000, and you need $3,000 for closing costs, because you're a little short on cash after you come up with your downpayment, then you may need to offer $200,000. That's a true full-priced offer.