Seven Key Strategies for Winning Multiple Offers

Seven Key Strategies for Winning Multiple Offers

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.

  1. 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!
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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!!
  7. 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.

 

Competing with Multiple Offers? Wondering How Much To Offer?

Competing with Multiple Offers? Wondering How Much To Offer?

Question Mark over BoulderThe Boulder real estate market is currently characterized by low inventory and good buyer demand. It’s a sellers market.  Many home buyers are finding that the houses that they are interested in buying are also coveted by other buyers. This leads to a multiple offer situation. A great situation to be in – if you are a seller.  But for a buyer it’s a difficult situation.  To see some perspectives on multiple offers from both sides, read this article.

In our area, multiple offers are most often handled in this way- the listing agent receives an offer and then lets all other agents who are showing or have showed the house know that they will be presenting the offer at a certain time and day. If another offer does come in, the first offering party is advised of the second offer and is offered the opportunity to revise their offer.  For the buyer, the information available is usually only limited to the number of offers that will be looked at and when to expect an answer. This year many homes are being listed knowing that there will be much initial interest. They state clearly in the MLS listing that showings start on Saturday and all offers will be reviewed on Monday. Being the first to show the house or the first to submit an offer doesn’t seem to have any advantage.

This information gap leads to much buyer anxiety. How much should we offer?  What are the other offers? Are we crazy to offer $X? Will there be another better house coming down the line that is less hassle and not priced so high? Will it appraise if we go over full price? It goes on and on and each of these questions are rhetorical.

Since I can’t answer these questions for my clients with any clarity. I rely on experience to advise them the best I can and ultimately I leave it up to them to pick a number.  Sometimes we use an escalation clause to calm the anxiety a bit and to hedge an overpriced offer.  In the end it’s an inexact science and the results favor the bold.

So far this year (through March 16th) there have been approximately 728 sales in Boulder County. In 27% of these transactions the buyer paid more than the listing price for the property. I can only assume that most of these 198 transactions had multiple offers. So in an effort to bring some data to the unanswerable, here are the statistics from those multiple offer situations.

  • The average successful offer over all price ranges exceeded the listing price by 3.4%.
  • The highest percentage paid over the list price was 44%. It was a foreclosure that was priced “well” below the current market value.
  • The average price paid over list in transactions under $250,000 (39% of all transactions)  was 4.42%.
  • The average price paid over list in transactions between $250,000 and $500,000 (44% of all transactions) was 2.79%.
  • The average price paid over list in transactions over $500,000 (17% of all transactions) was 4%.
  • In 37 of the 198 transactions the buyer paid $2,000 or less over list price.
  • The average premium paid across all price ranges was $13,010.
  • The median premium over list price was $6,600.
  • In the City of Boulder the average premium paid for those properties that sold above list price was 4.52%.
In a Sellers Market You Must Be A Smart Seller

In a Sellers Market You Must Be A Smart Seller

Most homeowners throughout the United States are having a collective sigh of relief. The home sales market is recovering and prices are rebounding. Between good news on the home front and a strong bull stock market, many people have a positive outlook on their personal finances. This is called the wealth effect and the result is a loosening of the household wallet.

I don’t sell cars, appliances or stocks so I will comment on what I know and work with every day. In a recent post I commented on the best practices of the home buyer in a hot real estate market. Today I’m going to share my ideas on how to be a smart home seller in a sellers market.

Price it Right

In the Boulder area real estate market we are seeing very low inventory and high demand. This causes a shortage of homes and results in smart sellers getting multiple offers and selling their homes for more than they thought they might.

But this isn’t happening to all sellers. Here is a scenario I’m seeing a lot right now – Mr. and Mrs. Seller recognize that the market conditions favor them so they decide to price their home 10 – 20% higher than what the recent sales in the neighborhood show. Buyers come out to see the home in great numbers over the first week and the general sentiment is that the house would be acceptable but it’s not a house they want to break the neighborhood record on and they move on. The Sellers recognize a few weeks later that they are not going to get their “dream price” so they reduce it by 5%. Still too high for the market but by this time the market wave of activity for a new listing has passed and they are chasing.

A smart seller in this market looks at the recent sales and the competition with their Realtor and decides  on a fair market value. They recognize that the market will bear a good price but they know that the house must appraise and be in good condition. If it is listed at a reasonable price near market value and in good condition there is a good chance there will be multiple offers.

Take Advantage of the First Wave

As I mentioned above there is a timeline for new listings. In basic terms here is how it works and why it is important.

At any one time there are (hopefully) many buyers who are in the market for homes in any given area or price range. In a market with low inventory they soon sift through the current listings (either in person or online) and decide that they are not willing to buy any of the current homes on the market. So they focus on what is coming on the market. Here is where a good Realtor is invaluable. This buyer cannot wait for an open house or wait for the Sunday paper. Buyers are trolling online at all times.  I have automatic searches sending results to hot buyers three times a day. So when a new listing hits the market buyers flock to see if this is the “one”. If it is they want to be first. The current buyers waiting for new listings are the first wave and right now it is a strong wave that lasts 3-4 days and comes in strong. In this market it is not uncommon to have 15 showings within the first four days. These are the most likely buyers.

If a home lasts through the first wave without an offer you know something is off (price, condition, location). After the first wave passes you, as a seller, are counting on people who are new buyers and those who were not available to see the property over the first days. This is a smaller pool. You are in the backwash.

Multiple Offers

If you have priced the home correctly the hope is to get multiple offers on your home. This puts the seller in a advantageous position and with guidance from their Realtor, they can compare the merits of multiple offers and choose the best one. I find it’s best to give all potential buyers in a multiple offer situation equal information. For me, that means each offering party knows when the offers will be considered and how many offers they are competing against. As a sellers agent I encourage buyers to bring their highest and best offers and give everyone a chance to revise their offers if they choose to do so. I then go through each offer with the seller and let them decide which offer gives them the best chance to close for the most money.

Get a Backup Offer

There are many reasons that a house that is under contract doesn’t close. Here are a few:

  • Buyers Remorse – This is especially common when the buyer feels pressure to make a quick offer and  then feels  that they have paid too much after beating out multiple bids.
  • Inspection – When there is time pressure to submit an offer there is not time to look at the home carefully or to show family members. This makes getting through the inspection especially important.
  • Appraisal – Just because a buyer is willing to pay a certain amount for a home doesn’t mean that the appraiser or the bank will agree.  If the appraisal comes in low and the buyer doesn’t have additional funds available to mitigate the banks risk the contract will terminate unless the seller is willing to re-negotiate. And if there were multiple offers, it is a good chance that the sellers will not re-negotiate.

It’s for these reasons it is smart to encourage a backup offer. And the best time to get a backup offer is when there are multiple offers. All it takes is to create a quick counterproposal with appropriate language. It is a no risk insurance policy which is usually a win-win.

Inspection Issues

If a buyer has paid a premium price for a home it is common for them to be very picky on the inspection. They feel the home should reflect the price and unless an “as-is” clause was included in the contract you can expect to be negotiating again on some inspection issues. As a seller your negotiation position is greatly enhanced if you have a backup offer. A good gauge as you consider the buyers requests is whether another (the next buyer) would likely require the same items. If so, it might be a good idea to negotiate in good faith and move forward.

Finding a Replacement Home

The advantages of a tight market on the selling side lead to difficulty if the seller needs to find a replacement home that will not require a double move.  In a strong sellers market, the sellers must have a plan of where they are going to go.  Don’t get stuck in a situation where you are homeless for a period of time.  Plan ahead!

Since each transaction is different it is hard to anticipate all scenarios but those are some of the major considerations when a seller is looking to list their home in a sellers market. If you are looking for expert representation in Boulder County call me, I have been successfully working in this market since 1991.

Top Three Buyer Mistakes In A Hot Real Estate Market

Top Three Buyer Mistakes In A Hot Real Estate Market

Budding trees, singing birds and swarms of home buyers. These are the signs that spring is just around the corner.  The first two happen every year but this year especially home buyers are our early and in droves. As we learned from the ‘birds and the bees’, ying and yang and Marvel Comic Books, it takes opposing forces to create balance.  Right now the balance of the Boulder real estate market is off kilter. There are not enough homes on the market to satisfy the demand of the buyers.

Over the past week 171 properties have come on the market in Boulder County. Already 24% of those homes have gone under contract.  If you look back two weeks that number jumps to 32%. It is a fast moving market. We just listed a home in Louisville and over the three days on the market there have been 18 showings.  Multiple offers are very common and many buyers are getting caught up in the frenzy.  Here are the top three mistakes I see being made in this market.

Paying Too Much

When you are at the supermarket comparing products and prices is easy. For example, you want some soup so you compare the choices available and decide; what flavor, what brand, what size, etc. It is easy to decide because there are ample choices and whether you are a value shopper looking for a generic brand or are willing to pay for organic soup with a brand name, you can easily make that choice. But if you go to a remote store, like you often find near a campground with one soup choice the decision is whether paying $5 for a can of Campbells is worth it to you. The scarcity in choice allows the seller to raise price and at that price soup will be worth it for some and not worth it for others.

Pardon the extended metaphor, but right now there is a scarcity in the real estate market and buyers are faced with buying decisions with limited options.  In many cases the decision is, do I pay more than seems reasonable or do I wait and hope that something better comes on the market.  I have seen many sellers pushing the market and some are being rewarded by buyers willing to pay high prices.

So, if you are a buyer how do you balance being competitive in this market where 18 buyers are looking at the same property within a few days and making a smart decision. The first tip is to do research like an appraiser would do. Look at the sales in the neighborhood over the past six months or year (depending upon how many have sold) and find the homes that are most like the home you are looking at. Compare the upgrades, price per square foot and I like to compare the assessed values as set by the county appraiser.  After comparing the sold homes to the home you are interested in you should have a good idea if you are within a reasonable range or if you are going to be setting a new record for the neighborhood.  If you are getting a loan, the appraiser hired by the bank will be doing the same analysis and they are much more conservative than the normal buyer who is newly in love and is riding an adrenaline high from beating all of those other buyers. If you have paid too much the appraisal will stop the sale.  So save yourself some time and money and work with your Realtor to see if what you are paying is reasonable.

Getting Caught Up In A Scarcity Mentality

When houses are flying off of the market and you may have missed out on a home or two, it may be easy to start to think that the house you have just seen (and might just work) will be the only one and if we don’t make an offer now…  Home buying is a process and sometimes there is a delicate balance between patience and action. This is where advice from a good buyers agent is invaluable. The truth is, even though you think that there will never be another house like the one you just lost out on, new listings are coming on the market all the time. A home buyer must always look forward and never dwell on houses that “might have been”. The right state of mind is one that objectively looks at the options and sees each house that doesn’t work as one step closer to the one that will work.

Not Acting Quickly Enough

In a sellers market the competition for good houses is fierce. Being a part-time buyer is frustrating and futile in many ways. In order to be successful you must be ready to pounce on a good home. Here are the steps that a buyer must take to be a active buyer, ready to buy.

  • Financing Ready – You must have your ducks in a row. A lender letter is required with all offers and it is best that you are already in the process of loan approval, just waiting for the property, verification of your information and an appraisal.  You also must have liquid funds for earnest money ready to go.
  • Quick Information – Knowing about the homes on the market is the next hurdle. If you are waiting for the Sunday paper you are most likely missing most of the homes. What I do for my clients is to set them up with a search that automatically scourers the MLS for new listings every few hours and sends us both an email with the results.
  • Quick Showings – Once you know about the new listings you need to get out there are see them quickly. Flexibility is a key and seeing promising new listings on the first day gives you an advantage.  I showed a listing this week that had just come on the market at 10 am.  We met at 5 pm and there were four other groups meeting there at the same time. What a zoo!
  • Quick Offer – Being ready to make an offer quickly is another key.  Be ready to analyze the data (see above) and make a strong offer is key to getting an offer accepted. A few weeks back I was able to make an offer on the spot at the house by writing the contract on my IPad and having the buyers sign on the spot. The seller and listing agent were about to meet so we had a tight deadline and we were able to meet it.
  • Be Smart- As coach John Wooden said “Be quick, but don’t hurry.” Buying real estate is a long term decision with large consequences if you don’t get it right. Be ready to make your best offer but don’t get caught up in the wave of competition.
Buying a home in a tight market is a stressful situation and under pressure it is much easier to make a poor decision.  I hope the three tips above help you navigate the process a bit easier.
If you are looking for a proactive buyers agent call me Neil Kearney 303.818.4055
How To Handle Multiple Offers On A Home

How To Handle Multiple Offers On A Home

Even though we are in a slower time of year, houses are still selling.  All year I have been seeing a shortage of good listings in the market.  Right now there are 15% fewer available homes on the market than last year at this same time.  This means that if a serious buyer is out looking for a nice home the cupboards are fairly empty.  Right now there are many leftover homes on the market.  I define leftover homes as those listings that haven’t sold for a specific reason whether it be price, location or condition.  This shortage leads to heavy activity on those homes that come on the market ready to sell.  Those homes are well priced, in good condition and in a location that doesn’t raise a red flag.  This leads to multiple buyers being interested in the same house at the same time. Here is some advice for handling multiple offers from the buyer and seller perspective.

From The Buyers Perspective:

  • Check to see if you have competition. Your agent will call the listing agent to announce your intention to write an offer. Make sure you know if you are competing with another buyer. At the same time have the agent ask for the sellers preferred closing date and for any items that will be excluded from the offer. All of the information below assumes that there is another offer.
  • Make your decisions quickly. Getting your offer in a day ahead may make a big difference. Ask for a quick acceptance deadline.
  • Do your homework: Check comparable sales and decide the maximum price you will be willing to pay. Also, think about how you would feel if you would lose this house over a couple of thousand of dollars.
  • Do a thorough walk-through: When you see a house you are interested in, take your time. Check on the condition of the house, what would you need to do to make it yours. Are the systems (furnace, roof, windows) in good condition?
  • Prepare a clean offer: Don’t ask for Sellers to pay for appraisal, cleaning, HOA transfer fees etc. When the seller is considering two similar offers, $50 can make a big difference and send a signal that the buyers asking for all of the small stuff will be tougher to work with down the road on inspections etc.
  • Have your financing in place and make sure to include a letter from a lender along with the offer. I prefer to see a local lender who can jump in and make the closing work in a difficult situation rather than somebody who is working a toll free line.
  • A nice touch is to write a personal letter to the seller explaining who you are and why you love their house. The seller has an emotional attachment to the house and wants to sell to someone who will take care of their house.

Consider an escalation clause. When the house is a good value and you know there is competition one effective method is to write in an escalation clause. This clause in the contract automatically raises the bid price if another offer beats theirs financially. For instance it could read “the offer price shall be automatically raised to a price $1,000 above any other bonefide offer, the purchase price shall not exceed $xxx,xxx”. This is where the buyer has to know how much they are willing to pay; is it full price or $5,000 over?

From The Sellers Perspective:

  • If you are attracting more than one offer it shows that you have taken care of your home and priced it correctly.
  • You want to make sure that all interested parties have a chance to submit an offer. Have your agent communicate to each agent who has shown the property recently to gauge interest.
  • When reviewing offers look at these main points: net price to you after all closing costs, dates and terms and buyers ability to pay and close. (more…)