Offer the most money. Thanks for reading everyone, see you next month!
Well, wait. Yes, it always helps your chances when you offer the most money, but there is more to it than that, especially when offering on a house that’s getting a lot of interest. Art, science, and good old fashioned intuition all contribute to the strategy of writing a good offer. It may not be 2021 anymore when every house got a dozen offers, but we do still encounter plenty of situations in which multiple offers come in on a house. Let’s talk some more about what it takes to get your offer to the top of the pile.
What’s Your Price?
Figuring out how much to pay when there are multiple offers can be tricky. If you want to go by rules of thumb, use this one: for every offer on the house, add 2% to the price. So, if the house is priced at $800k and you’re about to write the fifth offer, chances are that house is going to end up more like $880k. This is very general, but probably won’t be too far off.
What those five offers typically look like can also be generalized. One or two of them will be around the list price, within 1-2% on either side of it. One or two of them will be strong and reasonably above list price, but not in any scare-the-horses kind of way. They’re going to shoot their shot and be OK if someone gets it for more. One or two might be from buyers who MUST have the house and don’t care what it costs. If you’re going to offer on the house, you need to decide which of those buckets you fall into.
Terms Matter.
I spend a lot of (too much) time online reading the laments of buyers who lost out on a house to a lower bid and can’t figure out why. Sure, sometimes that winning offer was cash, which does present an advantage over a financed offer, but that’s not always the reason. Smart buyers and smart buyer agents pay attention to what terms are most important to the seller, and craft their offers accordingly. It’s not always money. Are you offering well over list price? If you’re doing that without an appraisal gap waiver, it’s useless. Do the sellers need a rentback or a long close? Don’t make an offer without including that. Is it an estate, with several bickering relatives making the decisions? Don’t put a quick deadline on your offer. Do they really not want to deal with the busted hot tub? Take it as is, it’ll be cheaper to deal with than offering another $10k. The list goes on. Early in the process, your agent should be reaching out to the listing agent to build rapport and discuss what matters most to the sellers, because it might both get you the house and save you money. This is critical.
Timing.
There are those who think that putting in a bully offer with a quick deadline (24 hours or less) on the table early in a listing is a winning strategy, to get that house off the market before the first weekend’s open houses. It works sometimes, but I don’t think it’s a winning strategy, for a few reasons.
First, and most importantly, any seller who receives this hot offer a day into their listing is going to realize that if you’re this high on the house on Wednesday, you’ll still be there on Sunday, so the threat of a quick deadline is pretty empty unless you’ve got a very compelling reason why that deadline exists and can convince them you’re going to stick to it. They’re also going to think if you’re this interested, others will be too, so there’s little risk in letting your offer expire.
Second, given that any offer written with this strategy needs to be a very strong one (think 3-5% over list, at least), you’re banking on it being a house that was going to get more than one other offer, so you’re offering enough to preemptively beat them. If you’re correct in that the house will get multiple offers, a savvy listing agent will know this too and the seller will be less likely to accept yours. If they’re not, you just paid too much. The double-edged sword here is that even if you’re comfortable with the overpay, the sellers should be a bit leery that you’re going to wake up in the morning with buyer’s remorse and cancel the deal, which happens more often than you’d think. That may make them less likely to take yours.
Submitting the first offer does have its advantages, in that you’re showing the seller right away that you’re serious about their house, and you’re the first one to attract some goodwill. Sellers are emotional, and never more so than at the launch of their listing. This could help your chances. The offer, though, should be a thoughtful one that takes into account their wants and needs. If the plan is to come in late (just ahead of any offer deadline the sellers have placed) and blow everyone else out of the water, well that’s a strategy too. I’m more in the first-is-best camp, which I believe gives the buyer the greatest chance at getting the house at their best price rather than their highest price.
The only time a (good) buyer’s agent is going to tell you to offer your maximum is when it’s either a situation in which their research and experience tell them that the house will go for at least that much, or you have expressed that you want this house by any means necessary. The rest of the time, the agent should be advising you of the most effective way of getting that house, without you waking up with a hangover. The best advice typically is, at what number will you be both OK with the amount you’re paying, but also alright if someone gets it for more? There’s your price.
