Multiple offers are common in the current market. Making an offer substantially over the asking price and/or market value is an option; however, there are other factors in your offer that can you increase your chance of having your offer accepted. The two main considerations for a seller reviewing multiple offers are the net proceeds they will receive if the contract closes and the probability that the contract will close.
All things being equal, the seller will accept the offer that will result in the highest proceeds, but all things are not equal. Offers involving government loans have the risk of the lender requiring repairs to the home as a condition of the buyer’s loan approval. Offers from buyers who have never viewed the home have a much higher probability of buyer termination. Buyers who make their offers contingent upon selling an existing property add an additional layer of termination risk involving their buyer. Cash offers eliminate the risk that a buyer will terminate over the loan or appraisal contingency. Buyers with smaller down payments have a higher probability of terminating based on their loan contingency. Most buyers are not in position to eliminate all of these or other risks to the seller; the goal is to craft an offer that minimizes any real or perceived risk factors.
Another way to make your offer more appealing to the seller is to include dates and clauses that are favorable to the seller. A competent agent will discuss the seller’s desired timeframes, possession, and other terms with the seller’s agent prior to meeting with their buyer client to prepare the offer. If you can accommodate the seller’s desired terms in their offer; it could tip the scales in your favor. An example of this would be allowing the seller to retain possession of the home after closing to give them time to close on a new home and/or move their belongings. Some of my clients waived rent for the possession period as an added incentive. Sellers do not always accept the offer with the highest net if it involves an unacceptable level of termination risk.
Another challenge is to determine the appropriate purchase price in your offer. A large percentage of homes are selling over asking price, in some cases, over market value. Some competing buyers, who are desperate and reckless, are willing to pay substantially over the home’s value. In most cases, buyers who identify a home they really want that has wide appeal must pay more than they would like in this market. However, you do not know what competing buyers have offered, so the price that will give you a good chance of getting the home is uncertain. In some cases, the use of an escalation clause should be considered. It basically commits the buyer to pay a certain amount over the best competing offered price up to a specific limit. The seller is required to provide a copy of the highest competing offer. The risk to the seller of accepting any offer potentially over market value is the buyer terminating because of the appraised value is lower than the contract purchase price. Some buyers modify the appraisal contingency to make the required appraised value lower than the final purchase price to reduce this risk to the seller.
The bottom line is that getting the home you want in this market is very challenging. Understanding the seller’s position and how they will evaluate offers will give you an advantage over competing buyers.