| Buying | By Anslie Stokes

You may have heard that the DC area market is hot right now, with intense demand and not nearly enough inventory to satisfy the ferocious appetite of buyers. So what happens when a great listing comes on the market that is well staged, marketed, and priced? More often than not, more than one (and sometimes 5, 10, or 15+) buyer wants to buy it and a multiple offer situation occurs.

If you’ve found yourself in a multiple offer situation, having an experienced agent by your side to help you navigate the perils of competing directly against other buyers for a listing is a must.

Here at The Stokes Group, we’ve represented buyers in hundreds of multiple offer situations. Here are a few strategies often used successfully by buyers to “win” in multiple offer situations:

1. Pre-Inspect the Property

As soon as you see a house that you love and you know there will be intense competition, book an inspector for a “pre-offer inspection”. This will allow you to be confident in the condition of the property (or budget appropriately for repairs) prior to submitting your offer. Most importantly, your offer will not be contingent on any inspections, which removes the main path that buyers use to “back out of” a contract and/or negotiate with sellers for repairs or credits in lieu of repairs. HOA, condo, and co-op buyers still have a document review period which allows them to back out of the contract, so a pre-inspection is still helpful but not as much as in the case of a fee simple property.

2. Be an All-Cash Buyer

Easier said than done, I know. But “cash is king” really is true in a competitive marketplace and being able to stroke a check for the full purchase amount can really set you apart as a buyer. If you have the ability to purchase the property with cash and then secure financing later (this is called a cash-out refinance) then that is one option. Other options include assistance from family members or possibly using an equity line of credit against another asset. We have seen sellers forgo tens of thousands of dollars by accepting an all-cash offer over an offer that involves financing, solely because the risk of anything arising that would delay or cancel settlement is greatly reduced with a cash buyer.

3. Position Yourself to Waive the Appraisal Contingency

When you get a mortgage, the lender bases your loan on the lower of the two values when comparing the contract sales price with the appraised value. For example: If you are under contract on a house for $1,000,000 and you plan to get a loan for 80% of the purchase price ($800,000) then the lender is going to independently value the property (called an appraisal) and give you 80% of the lower of the two numbers. So if the appraised value comes in at or above $1,000,000 then all is well and you will get your loan for $800,000. If the appraised value comes in below $1,000,000, the lender will only give you 80% of the appraised value and you will have to bring the rest as additional down payment. In our example, if the property appraises for $975,000 then the lender is only going to give you a loan for $780,000 and you will then need to bring $220,000 to closing as your down payment.

The key to waiving the appraisal contingency is having enough cash reserves to make up any difference between the contract sales price and appraised value. A good buyer agent should be able to assist you in determining a likely range of an appraised value based on comparable sales. From there, you can decide whether or not you are comfortable waiving the appraisal contingency. If a seller receives many offers on their listing and the price escalates to above what the comparable sales suggest, it will be appraised then. Transferring the risk of a low appraisal to the buyer will be a key consideration for the seller in determining which offer to accept.

4. Ask Your Lender to “Pre-underwrite” Your File

This is quite different than a pre-approval or pre-qualification. A pre-underwritten loan means you have submitted all requested documentation for your loan (which can include tax returns, W2s, 1099s, Schedule Ks, bank statements, etc) and an actual underwriter (not just the loan officer) has thoroughly reviewed your file and issued a credit decision with conditions that are easily met. Once this happens, you may be in the position to waive your financing contingency and still be confident in your ability to secure financing. We only recommend doing this on condos if you have time to get the condo lender questionnaire filled out by the management company and also have that approved by the underwriter (for financing in a condo both the borrower and condo must be approved by the underwriter).

5. Use an Escalation Clause

In a hot market, list prices often do not mean much. If there is more than one buyer bidding on a property, it is highly likely that one or all buyers will use an escalation clause in an attempt to “outbid” the other buyer(s). An escalation clause works like eBay: You put in writing to the seller that you are willing to pay $X more than the next best offer (called your escalation factor) but you are not willing to pay above $Y (called your escalation cap). The seller’s agent will then collect all the offers at one time, use the escalation clauses to determine how high each buyer can be escalated and help their seller determine the best offer to accept. Of course, the highest offer is not always the winner, it often comes down to a combination of the price and the terms, but certainly having one of the highest escalation caps puts you “in the mix” when a seller is reviewing multiple offers.

6. Give the Seller the Exact Settlement and Possession Dates They Are Requesting

Moving can be an incredibly stressful event and often times the logistics of lining up a move, your next housing arrangement, schools, utilities, etc., can be daunting. If a seller requests a specific settlement date and/or possession date, it is very likely that they have lined up many logistics around those dates. Varying from them even by a day or two might knock you out of contention, even if your pricing and terms are competitive.

7. DON’T Present a Letter to the Sellers About Who You Are as Buyers and Why You Are Perfect for the House

A seller and listing agent are bound by fair housing laws; there are 8 federally protected classes and most state and local jurisdictions have additional protected classes. If your letter discloses anything about you that indicates that you are a member (or not) of a protected class and the seller uses that information in determining which offer to accept (or not), then the seller and agent could possibly be subject to a fair housing complaint. A good listing agent will not even present those letters during the offer selection process and a good buyer agent should not allow their clients to submit a letter. Sellers should make their decision solely based on the price and terms of the offers.

No single strategy above is guaranteed to make you the winning bidder in a multiple offer scenario. Different sellers value price and terms differently, so anytime you are competing you must be prepared to not be the winning bidder. However, following all or some of the strategies laid out above can help position you to be as competitive as possible.

Here at The Stokes Group, we relish the challenge of multiple offer situations and pride ourselves in working with our buyers to use every strategy possible when they are competing. Let us put our experience to work for you–give us a call at 202.270.1081 or email us at anslie@thestokesgroup.com.

The Stokes Group is a team of dedicated professionals who have passion for the real estate business and will advocate for our clients with the utmost honesty, integrity, and confidentiality. We believe in building solid relationships with our clients and that starts by getting to know who we are. Follow us on Facebook and Instagram.

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