During 2015 43% of all homes sold in the City of Boulder sold for more than asking price (see more context in my year end report) . Presumably most of these homes had multiple buyers making competing offers. So what does it take to be the winner of a multiple bid situation? Here are seven strategies for winning multiple offers. I liken these ideas to a set of arrows in a quiver.
- Price – The most effective way to win the hearts and minds of a seller is to give them the most money. In theory it’s easy give them more than anyone else. In practice, given limited information, it’s very difficult to know what others who are exactly in your position will do. On average in 2015, those homes that sold for a price over asking price sold for 4% above. The range is from just a few hundred dollars over to 20% over. Now that’s using a sharp and effective arrow!
- Escalation Clause – This could be a subheading under price but I think it’s worth giving it top billing. An escalation clause is a paragraph inserted in the contract which states; that the buyers agrees that if their offer isn’t high enough their offer will be automatically increased to beat any competing offers by $X,000 up to a cap price. Some sellers and their agents announce that they will not accept escalation clauses because they view them as a hedge (we are willing to go higher but only if we need to). For a buyer an escalation clause is a good way to state your intentions to the Seller without paying way more than you need to. If a buyer is going to use an escalation clause, I recommend that the contract price be strong as well. If you offer $10,000 lower than asking price but are willing to go up t0 $30,000 above if pushed the seller may not see this as earnest as an offer who offers $25,000 over the asking price right off the bat.
- Financing – Sellers want the most money with the smallest potential of the contract cancelling. It doesn’t do any good to get a great price and then not be able to close. As a buyer you can tie into this fear by making your financing as clean as possible. Cash is king. And it removes many contingencies as well. But if you don’t have cash you can do well by having your financing in order. Get pre-approved not just pre-qualified. Have your lender picked out. Choose a local lender. Make sure your lender is available to answer questions about you.
- Waive the Appraisal – Your lender will require an appraisal but if you are putting enough money down you can still waive the right to object to the appraisal. In a fast appreciating market the appraisal contingency is something sellers worry about and if the appraisal doesn’t match the price as explained in #1 above the transaction has a real chance of not closing. But as a buyer if you are putting enough money down (think at least 25%) you can talk to your lender and see if waiving the appraisal provision is a possibility.
- Inspection – Some buyers come in really strong during the negotiations and then try to re-negotiate during the inspection period. As an earnest buyer you can promise the seller that you will not negotiate after the inspection. To do this we add a clause to the contract that states that the buyer will take the property in as-is condition but that they still retain the right to terminate the contract if they find something big or unexpected during the inspection.
- Personal Letter – Earlier this year I had a listing that received three offers. The two best offers were nearly identical; same price, same escalation clause, closing date within a week of each other, local lenders with the same down payment. There was nothing in either of the contracts that was swaying the seller. The only difference was that one buyer sent with their offer a personal letter that introduced themselves and let the seller know how much they loved their home. Winner, winner chicken dinner!!
- Clean Contract – Your agent needs to do their part by writing a “clean” offer. This means that the contract is filled out correctly, all required paperwork is attached, all dates in the offer are reasonable and make sense, all negotiable payments like HOA transfer fee and title closing fee are at least split if not. Small things that cost a few hundred dollars can make all the difference when you are competing. Also, if you like working with your agent chances are that the listing agent likes working with them as well. This cooperation is essential and it’s a feather in your cap to work with an agent who has experience and is known as easy to work with. Working with an agent with a tag line of “The Enforcer” (this is made up) may be an indication that they may like to fight and win and not cooperate. When given a choice agents like to work with other cooperative agents.
Good luck out there. These multiple offer strategies have worked well for my buyers over the past couple of years. If you are looking for quality representation please let me know.