If you are considering selling your home and you live in a neighborhood where inventory is low and demand is high, then you should have a plan in place (prior to listing) for how you will handle a ‘multiple offer’ situation.
Generally speaking, multiple offers on your listing is a desirable situation to be in as a seller. There are commonly two ways for a listing to lead to multiple offers:
1. A seller can artificially price their home well below comparable sales in a conscious effort to drum up a competitive bidding situation. We often see this when a property that is ripe for development hits the market. It is not uncommon for these listings to be listed 100k or more under a reasonable assessment of market value. Naturally, a bidding war ensues and the seller may receive 10, 15, 20 or even 50+ offers in some really remarkable scenarios.
2. A seller can price their home in line with comparable sales but their property is located in a highly desirable neighborhood and/or building. This is the most common scenario we see in the market right now. The list price is a reasonable assessment of market value on the property and in a balanced market, the seller would be looking for 1 good strong offer after 5-10 days on the market. However, in a seller’s market, these listings almost always generate multiple offers.
So how do you go about setting yourself up to receive multiple offers? We use the following strategies with our sellers:
1. Get your home in absolutely perfect show-ready condition.
This is true no matter what kind of market you are selling in, but it always bears repeating. You only have one chance to make a first impression and if you want to generate multiple offers, then you need your house to look perfect.
2. Have a plan prior to listing for how you will address intense interest.
This usually means setting a deadline for offers 4-5 days after the listing has been set to active. In most cases, we like to set a listing to active and begin allowing showings on a Thursday while setting a deadline for all offers on Tuesday or Wednesday of the following week. This gives the property 6-7 days of market exposure. This must be communicated correctly to buyers and buyer agents; you don’t want to scare off potential buyers by putting “OFFER DEADLINE” right in the property description, but at the same time, you don’t want a potential buyer to miss the listing because they didn’t know there was an offer deadline set.
3. Make sure the property is readily available to be shown.
Often times, this means finding somewhere else entirely to stay–especially if you have pets or young children. Buyer agents sometimes give as little as 20-30 minutes of advanced notice for a showing and it is critical to get as many buyers through the door as possible during the brief window when the listing is active.
4. Have a well-thought-out and very professional marketing plan.
Your marketing plan should be precisely executed, given the expected brief period of time the listing will be active. This often involves heavy “pre-marketing” of the listing to generate awareness and interest prior to the listing actually being ‘active’ in the MLS.
5. Plan an open house during this window.
Work with an experienced agent (our team is full of them!) who will market your home widely and host every open house.
6. Beware the preemptive bidder.
So you have carefully followed steps 1-5 above and then the very first buyer who tours your listing promptly submits an offer well above the asking price with favorable terms but a 12-hour expiration clause. What do you do? This situation can be difficult to navigate and it is a perfect example of why you need an experienced agent guiding you through the process. Whether or not you should consider accepting that offer will depend on the price (Is it high enough above what you realistically think you can get for the house to make it worth taking?) and the terms (Does the buyer have any ‘outs’ in the contract that will allow them to void their offer at some point in the future?).
So you have followed all of the strategies above and now it is Tuesday at 12pm (your offer deadline) and you have 2 or 4 or 6 offers on your listing. How do you navigate those offers?
We have represented countless sellers who received multiple offers on their listing. In our professional experience, sellers who want to maximize their return and minimize their risk have used the following strategies successfully (Pro Tip: Steps 1- 5 will be handled by a good listing agent before the offers are presented to you as the seller):
1. Review every single page of each offer.
Create a spreadsheet comparing the key terms of each while noting any inconsistencies or housekeeping that may need to be done on the contract if it is to be accepted. Contracts in DC and Montgomery County can be 30+ pages long, with Virginia contracts only being slightly shorter, so summarizing all the information in one spreadsheet is critical for comparison.
2. Calculate the escalated offer price.
If escalation clauses are included with any offer then calculate the escalated offer price of each offer and confirm with the buyer’s agent that their client would, in fact, be willing to escalate that high if a counteroffer was presented by the seller (In DC and Montgomery County, escalation clauses do not ‘self-ratify’, so it goes back to the buyer as a counteroffer. In Virginia, the escalation clause is a part of the offer and the seller can ratify it if all other terms are acceptable).
3. Carefully check all of the supporting documentation for each offer.
A good offer will be presented with proof of funds for the down payment, an earnest money deposit, and a strong lender letter if financing is part of the offer. If any supporting documentation is missing, follow up on it before making any final decisions.
4. Call the lender for any offer that is ‘in the mix’.
Ask for specifics about how in-depth the pre-approval process was, if there are any concerns on the loan officer’s part, where the loan will be underwritten, if the date of settlement is feasible, etc. If there are any inconsistencies between the offer and approval letter, address that during this call as well.
5. Weigh the strength of the lender.
Is the lender local and able to underwrite in-house? Are they a big national bank that processes loans centrally and operates on their own time frame (often not understanding that our contracts are ‘time is of the essence’, which means a buyer can potentially be in default if the settlement date is not met)? Is the lender a credit union, which tends to move slower than other lenders? Is the lender a fly-by-night internet lender who generates pre-approval letters with no vetting behind them?
6. Make a Decision.
Okay, now comes the hard part: It is time to make a decision on which offer to accept. In a perfect scenario, one offer will clearly rise to the top and your decision will be very easy and very clear. Often times, that is not the case and a seller must carefully parse price and terms to determine which offer best suits their needs.
a. Start with the term most important to you. Often times, this is the seller net price (contract price less any seller concessions) but it can also be date of settlement (the date you get your proceeds) and/or date of possession (the date you have to be moved out by) depending on where/when you are moving and how quickly you need your proceeds.
b. From there, consider the financial strength of each offer. If one or more offers are all cash then that should have significant weight in your decision, as there is very little risk of a delay at settlement with a cash buyer.
c. If there are no cash offers or offers with financing are significantly higher, then consider the size of the down payment and strength of pre-approval. Consider if the loan is conventional, FHA or VA, and if the loan amount is conforming or jumbo. Understand if the loan is more ‘vanilla’ or if the buyer will need any exceptions granted (see point 4 above).
d. Did any buyer perform a pre-offer inspection? If so, then the ability of that buyer to walk away from the contract is greatly reduced (not so for a condo, which has a statutory document review period).
e. Do any of the offers waive the appraisal contingency? If so, then the risk of a low appraisal is transferred to the buyer. This matters more if the potential sales price is above recent comparable sales.
f. Remember to not lose complete track of the somewhat less critical terms, such as the title company and amount of earnest money deposit. These are often not deciding factors but can offer clues as to the seriousness of the offer.
The overarching goal of any multiple offer scenario should be to net the highest possible sales price with the best possible terms while transferring as much risk as possible to the buyer.
Typically, an all cash offer with a price that exceeds any other, no contingencies, and the exact settlement and possession date the seller is looking for is the dream offer. Those offers do exist but far more often there are many complexities that must be weighed for each offer.
Even with the most diligent effort to vet offers and pick the best one, sometimes the contract still falls apart. In those rare cases, it is imperative that a good relationship was established with the other buyer agents, as you might end up in a position of needing to call the next best offer to see if they are still interested and able to ratify an offer.
When you work with our team, we will treat all other agents/buyers in the process with the utmost respect. We will be readily available for questions during the offer process, promptly returning calls and emails, and will be professional and courteous when notifying the parties whose offers were not accepted. Our team has established deep and strong ties to other agents in the markets we serve; we know that when ‘second opportunity’ scenarios arise, it can often hinge on how the losing buyer and buyer’s agent were treated when trying to put a second offer in place without having to relist.
Sell with our team, and we will not only position your home to receive multiple offers, we will also help you navigate through the process so you come out on top of your home sale. If you are ready to get started, call us at 202-270-1081 or email us right here.