How to Win a Multiple Offer Situation
2021 Home Buyer Tips
So if you’re a home buyer right now looking in Northeast Ohio, it’s not a very fun time to be buying a home. And quite frankly, the real estate agents get frustrated running buyers around the home buyers are frustrated because they’re losing tons of deals.
Hopefully, this video will give you some tips on home buying strategies to consider to win in a multiple offer situation. Even if you’re not working with me, and I don’t really care about that, I’m just trying to help home buyers understand what they’re really dealing with in our seller’s market right now.
I’m Damian Baden, your local real estate agent in Northeast Ohio. I’m going to give you some of the home buyers strategies I’ve experienced from the listings that I’ve been doing. Hopefully, this will provide you with some ideas on how to win in a multiple offer situation.
There are two different types of buyers.
- You have buyers who are just entering the market who really have no clue what’s going on or what to expect. Unfortunately, sometimes these buyers are not working with the sharpest of buyer’s agents out there to where they’re probably not getting all the tools they need to be successful.
- Then there are other buyers out there that have lost several deals and become very frustrated. At some point in time, they’re going to just be like, “I’m going to pay whatever I can to be done with this home buying process because I’m so sick shopping and touring homes.”
Hopefully, I can help you avoid either of those from taking place with you by watching this video.
Let’s get started on how to win in multiple offer situations when buying a home in 2021.
Understand what the comps are in your searching area.
If you think you’re going to go in and get a good deal right now, realize everybody’s overpaying for a house. Home listings are way down, and hungry home buyers are out there searching. Understand, there are more buyers than there are houses for sale right now.
If somebody has a good house for sale, you better be prepared to pay more for it today. So understanding those comps is going to help you realize what you should or should not pay based on your comfort level.
Another thing that I like to bring up is, people go out and buy cars all the time. One of the biggest things is new cars lose half the value in two years. So, you might lose if you go buy a house today if you’re going to sell it two or three years if the market shifts a little bit, but if you really look back at all the cars you’ve purchased, you’re probably going to lose more money on those vehicles than the house that you’re going to live in. So not telling you to overpay, but just kind of keep that in mind because sometimes people get so frustrated if they lose a little bit on the house, but yet they lose tons of money on cars, and we buy more cars than we do houses in most cases.
Many homes are in multiples and going over the asking price within days when it comes to price.
I explained to a home buying client the other day that if you’re at a smaller, more affordable home, these homes are often going $20,000 or more over asking. The three and $400,000 homes are going even 10% over the asking price right now.
Buyers are willing to overpay right now, and if you are looking to buy, you should keep that in mind. I’ve seen $300,000 homes for sale selling as much as $40,000 or a little more over the asking price.
Cash is King in Multiple Offers
If you have cash or you’re competing with another buyer who has cash, cash is king compared to other offers right now.
With cash purchases, sellers are not going to have to deal with an appraisal. If you don’t have to worry about a home appraisal on a home, you don’t have to worry about the home under appraising.
Use an escalation clause to help win an offer that is in multiple offers.
If you are a home buyer using financing, you should be looking at an escalation clause. And I think an escalation clause is for most homebuyers because why pay more than you have to.
With an escalation clause, you can say that you’re willing to pay X dollars over the highest offer, but you’re also able to limit yourself on that number of what you’re ready to go up to. The one thing everyone should keep in mind when using an escalation clause, put the max limit you’re most comfortable walking away and not being upset if you lose the deal. If somebody is willing to pay more than your walk-away limit, then, so be it, let them have the house.
Don’t be the home buyers out there that when we call and tell you that you’ve lost the deal, all of a sudden you’re like, well, I would’ve paid more.
If you would have paid more knowing you would be in multiple offers, you should have written a higher max price in the escalation clause. It’s sad, but sometimes we get blamed as real estate agents on the buyer’s side when you, as the buyer, don’t win the deal. But if you’re not putting your best effort forward and not putting your money where your mouth is, you are to blame if you really want that home. You have the opportunity to buy the house just like every other buyer who is competing. Whoever’s willing to pay the most or gives the best offer up front is going to win the deal for the house.
As a home buyer, understand the escalation clause.
If you have a lot of extra money above and beyond 20% to put down, there’s a section in that escalation clause that talks about gap protection. Basically, if the house does not appraise, you, as the buyer, are willing to cover the difference above the down payment that you’re making. An extra 20, 30, 40, $50,000, whatever it is when you do that, you all of a sudden make your offer in multiples more attractive to a seller. If you don’t have a cash offer or are competing with a cash offer, offering an additional dollar amount to cover the difference between the purchase price and the list price if the home doesn’t appraise will get the seller’s attention.
The other day, I had somebody putting down another $130,000 above and beyond the 20% they needed for the loan, but they put zero-gap protection in their offer. My seller was savvy enough because he’s had multiple homes, and he’s been buying and selling recently because they have numerous properties. My seller asked, “Why wouldn’t they put even part of the additional $130,000 down as gap protection?”
What’s going to happen if this home doesn’t appraise, and do they have the opportunity to back out? The way the offer was written, they did have an appraisal option to back out. But with that gap protection, at least it helps you tell the seller you don’t want to back out. If you’re overpaying as a buyer and it’s not going to appraise for that number, you still have the money set aside to do the deal, and you are making the seller aware by filling in the gap protection section of the escalation clause. So, especially in that situation, there was tons of money to set aside, but they never wrote it down.
The additional money in the offer was left for interpretation… putting a big question in my seller’s mind. The confused mind always says no. So just kind of keep that in mind.
Consider Paying Seller Closing Costs in Multiple Offers
Win in multiple offers by offering to pay the seller’s closings costs.
Something else that you could do. That’s been very interesting, especially when you know somebody’s paying more than the home’s worth covering the seller’s closing costs.
In the past, when we were in a buyer’s market, buyers were getting their closing costs paid for by the sellers. Now, sellers are getting offered up to$5,000 for closing costs. Keep in mind with prorations and taxes, sometimes sellers may not use the total amount provided by the buyers who are competing in multiple offer situations.
Offering to pay sellers closing costs is just another way to help win a multiple offer situation by making your offer look a little more attractive to a seller. Especially if you’re, bidding against three or four and sometimes 10+ other buyer contracts.
I’ve heard some ridiculous numbers of offers being out there before the listing agent and the sellers shut down showings. I don’t know why a listing agent or a seller would let their listing run so long. But the thing is, putting seller closing costs in your offer might be another option for you to stand out and win in a multiple offer situation.
I’m not a fan of personal letters to the sellers.
You know, people write these letters to the sellers. To me, I’m a little concerned. I don’t suggest doing anything like personal letters. I’m not a lawyer, but it’s getting a little too personal. And I think that leaves a lot of room for problems.
Some buyers are waiving inspections in multiple offers.
Other problems that I get a little concerned about are I see as people who are waving home inspections. And if you choose to do that, that’s something that’s entirely on you. If you are being told not to get an inspection by your real estate agent, that’s scary because your realtor does not know. If something majorly goes wrong after close, your agent will not be covering the expense. I make all my buyers sign something that says, get a home inspection. If my buyer chooses not to do a home inspection, it’s on them.
A home inspection is not something I would tell a home buyer they shouldn’t do. I would never say to a buyer not to get a home inspection. Not getting a home inspection can be scary. Telling one of my clients not to get a home inspection is not a chance I’m willing to take.
If you’re a buyer and you’re doing a home inspection, there is an option available that sellers may not be opposed to if they have a well-kept home. Recently, I had a buyer client write in their offer that they’re doing it for peace of mind. So, if something’s majorly wrong with the home, they had a way out of not being stuck with a house. They weren’t going to ask for any repairs. They were just doing it for peace of mind. And I think that makes it safe for both sides in a multiple offer situation. If you’re doing it for peace of mind, some sellers might still want to go with an offer that has no inspections, but the point is there are ways to do inspections that don’t take money away from the sellers.
Radon In Multiple Offers
Many people test for Radon, but if you’re going to test for Radon, it costs around $200. Now think about it this way. If the radon test fails, it’s going to cost about $1,000 to put a mitigation system in. I always tell all my clients, if you’re so concerned about Radon, spend $1,000 and just get the mitigation system. Why? I’ve actually sold a house more than once to where it passes a radon inspection the first time. A couple of years later, we sell that house. The new buyer gets a radon test, and it fails the radon inspection. So the thing that you have to understand about Radon is, it could be here today, gone tomorrow. It could be at every other lot around yours, or it could be on yours and not any other lot around yours. As platelets shift in the ground, the gases can come through in different areas.
I always say, if you’re that concerned about Radon, have a mitigation system installed. It’s that simple.
When being competitive in an offer situation where there are multiple offers, if you handle Radon on your own, if it’s a big concern to you, that’s another way to be competitive. Other buyers who request a test for Radon in their offer can be adverse to a seller when others are not. It’s concerning because if it fails, that’s just more money out of the seller’s pocket, where if somebody else is not asking for Radon testing, that’s making an offer more exciting for the sellers to make a deal.
So hopefully, these are just a couple of different ways to be a little more competitive in a multiple offer situation.
Deal seekers need to stop thinking that you’re going to get a good deal on the house right now because you’re in most situations you are not.
Let’s say the house is probably a $400,000 house, but you’re willing to offer $450,000 for it. Understand the risks that you’re making by understanding the comps of recent sales in the neighborhood. Also, keep in mind, if you really want the house, know that there’s likely a bunch of people bidding. If you’re going to spend $10,000 or $15,000 more than the highest bid, not the end of the world. Especially if you look at all the money you spend and lose on cars, you drive.
You have to know what’s comfortable for you in terms of the offer price. At the end of a multiple offer situation, the losing buyers get so mad, and often, they were not being competitive. They’re just hoping that they get lucky and their offer wins. Often, luck does not run too long because there are so many seasoned buyers out there that are being very aggressive right now.