We're seeing bidding wars continue to run rampant. Sellers have to list more as buyers scramble to scoop as much property as they can thanks to the pandemic's special interest rates.
With multiple offers, it's easy for people who are unfamiliar with the art of finesse to take the biggest offer they receive. A good Realtor will know to tell them slow down, there is a line between patience and it's antonym that we call perfect timing. That's what we want, and that's something you can only feel if you've got It.
The key to evaluating offers is making sure the offer terms align with your clients’ goals. Whenever we receive an offer on a listing, we’ve found an effective way to pragmatically analyze the offer’s different facets by grouping offer terms into three categories: speed, certainty and price.
Getting the best offer possible requires a thorough bird's eye understanding of the field, the situation, your seller, and the buyers. We're going to go over the steps you can take to ensure your deal secures the best offer.
Timing
Closing dates for sellers and buyers?
You're going to balance your seller's preferred timeline with the buyer's. There is a spectrum of best to worst timing, and it's up to you to play along that in a way that will secure the best deal for your clients.
How flexible is the buyer?
Everything is negotiable. Everyone's terms only exist as they do because they decided. You can show them the best way forward because you know by helping them you effectively improve the universe, but it's not your choice; it's just up to them if they want to live their best life (the one you've showed them), or not.
When does the offer expire?
Sometimes buyers will say an offers only valid for one week on the dot. Sometimes they'll say "it's good for 42 minutes post-delivery." You'll want to take note of your possible time frames on different offers so you can continue to play the game as best as possible.
Certainty: How qualified is the buyer?
Is it cash?
When you receive a cash offer, it means there is no middle man. Someone has a product, someone has cash, they want to trade. There's no chance of third party financiers getting in the way, or appraisals coming back unfavorable. The trade-off is that cash offers are typically lower. Weigh your options with your sellers.
Is the buyer financially secure?
Is the person buying the house well-funded? We want to know the deal will go smoothly, so having a cash buyer, or at least a buyer with a pre-approval letter, is the goal. Some Realtors only work with people who get pre-approved, but that's usually on multimillion dollar properties. What factors do we want to consider?
- Down payment: The higher the better.
- Earnest money deposit: A deposit that goes towards the cost of the house, which sellers get to keep if the deal falls through. It's usually ~1% of the home's total value.
- Pre-Approval: We're seeing bidding wars all over the country, especially in Boston. Showing a place to someone before they get their pre-approval letter is an idea worth carefully considering lest you want to show a $7,000,000 home to two college kids pretending they're married so they get free snacks and a window to role-playing.
What contingencies?
When buyers set contingencies, they agree to buy so long as conditions are met, so consider all of them and discuss with your seller. The stuff you understand thoroughly, you want your sellers to understand conversationally.
Monetary and inspection contingencies are standard. One strategy, for buyers, is to lather on the contingencies, then remove some "in good faith" to encourage a seller to sell to them since they "did them a favor." Black Friday is right around the corner, after all.
Price: How much are they offering?
Self explanatory, but it's deeper than that.
Is the buyer offering to pay closing costs?
Generally, the buyer and seller collaborate on closing costs. That means negotiating closing costs is a potential power play in the warring market we see
Sellers can also negotiate facets such as escrow fees, home warranty fees, HOA transfer fees, recording fees and title insurance fees — all a part of the seller’s closing costs. Your clients should take these expenses into account when calculating their net proceeds from the sale.
If needed, will the buyer pay for a new survey?
It’s typical for lenders — and title companies — to require a survey before finalizing the buyers’ loan. If the seller has an existing survey, the buyer will often opt to use that. But in cases where there is no survey, say if it were misplaced or insufficient to meet a lender’s requirements, one party would have to pay to draw a new survey. In their offer, the buyer will indicate which party they expect to pay.
Will the buyer pay for the survey endorsement or coverage?
The survey endorsement, also known as survey coverage, protects the buyer against any survey errors. If the buyers opted to use an existing survey provided by your seller, they’d usually add this coverage to their title insurance policy. Because this expense is negotiable, the buyers might stipulate that they or the sellers pay for the coverage, which will ultimately impact your sellers’ net proceeds.
Is the buyer requesting that the seller pay for the home warranty?
Although home warranties aren’t required, most buyers choose to purchase one for peace of mind. For example, it’s standard for the sellers to pay for the buyers’ home warranty in Texas, but the buyers might also choose to pay for it themselves to make their offer more appealing.
Is the buyer offering a leaseback — at what expense?
If your seller requires a more flexible timeline, buyers who are in-the-know might add the option for a leaseback to their offer, giving your sellers the flexibility to move out on their terms. Typically, the buyers require the sellers to pay rent during this time. But in competitive markets, buyers might agree to lease at an under-market rate or for nothing at all — a gesture that could end up saving your sellers a nice chunk of change.
When it comes to helping clients navigate multiple-offer situations, we should always aim to provide a comprehensive analysis. But when you receive five, 10 or even more offers, thoroughly evaluating each offer and presenting this information in a clean and organized way that makes sense to our clients is no easy task.