Wouldn’t it be great if you got multiple offers on a listing every time? Of course, that doesn’t always happen, but it’s happening more often in hot real estate markets. You need to know how to counsel your seller on what to do next. Your job is to make sure that your sellers close successfully; just getting multiple offers isn’t the end of your responsibility. These tips will help you manage the situation with ease.
Make sure you’re complying with the rules.
Different states have different multiple offer rules, so make sure you know what you need to do to comply with those rules. If you’re in a hot real estate market, and your real estate showing feedback is telling you that multiple buyers are extremely interested in the house, start preparing yourself for a multiple offer situation.
Prepare for multiple offer situations when you list the house.
If you’re in a market with low inventory levels and a high level of demand, you may anticipate multiple offers, or offers that will come in on the first day the house shows on the MLS. For your seller’s sake, you don’t want to jump on the first offer you get, so make that known in your MLS description if it meets your state’s rules.
Add something like this to your MLS listing description: No offers will be considered until [date]. Set the date for at least a week after the house first appears on the MLS. You want the house to have some exposure on the market in order to sell at top market value.
Evaluate the offers considering price, terms and the buyer’s finances and motivation.
As you know, you can’t just go with the highest bid. The terms are critical and should be given equal weight. If an offer includes many contingencies, it’s not the strongest offer, even if it has the highest offer price.
Consider the buyer’s financial position. Buyers who put down a larger earnest money deposit may be more serious and stronger financially. In a multiple offer situation, you can afford to look for the buyer who is financially overqualified to improve the odds of closing successfully.
Consider the buyer’s motivation. Have they sold their home and need to make a move? Do they have relatives in the area, or is the neighborhood perfect for an easy commute to work? Motivated buyers are much more likely to make the deal work.
Create a strategy if the offers are higher than the projected appraised value.
If the buyer needs to finance the purchase, their lender will want an appraisal. While most appraisers are very careful about developing a market value, appraisal amounts don’t always reflect the market.
There may be times when a market is heating up. Existing home sales used for the appraisal may not reflect a quick rise in a neighborhood’s value. In other situations, there may not be a large number of recent comparables; therefore, the appraisal is more of an educated guess. In addition, factors such as multiple foreclosure sales may artificially bring the appraised value down for other homes in the area.
If you think that the home’s market value is above the projected appraisal value, tread carefully. You can look for offers that waive the appraisal contingency. If those offers are from strong cash buyers, there may not be a problem. If a buyer who will finance the home waives the appraisal contingency, the lender will still require one. The only way they’ll be able to close is if they put more down to cover the difference.
For example, let’s say the offer price is $300,000. If the buyer wants to avoid PMI by putting down 20 percent, their down payment should be $60,000. But, if the appraisal comes in at $285,000, the buyer will need to add another $15,000 to their down payment to satisfy the bank. Your seller will need to feel comfortable that the buyer is prepared to do that.
Another thing to watch out for is the buyer who waives the appraisal contingency, but uses the inspection to identify a laundry list of things that must be addressed by the seller, effectively lowering the sales price.
Leave the Final Decision to the Seller
Your role is to provide the seller with all the information and guidance they need, then let them make the final decision. Be prepared to help your seller avoid the poor decisions that can happen in the excitement of a multiple offer situation.