The 2021 real estate market is much of the same as 2020 here in Massachusetts. Inventory is low, mortgage rates are at historical lows and buyers want to buy. All of which is creating a market that is ripe for multiple offers on a house.
As a matter of fact, if you run into a good house, you can pretty much guarantee that there will be multiple offers on that home. The time it takes for a home to accept an offer is very low. Here in Essex County homes for sale have been accepting in offer in 23 days on average and have been going 2% over asking.
In the 20 years, I have been in real estate I have not seen such a hot seller's market.
This is great for sellers but can be extremely nerve-wracking for home buyers. Navigating the market as a buyer can be tough!
Let's take a look at some strategies when bidding on a home with multiple offers.
Be The Winner On A House With Multiple Offers
Of course, a seller is concerned about getting the most amount of money for a home that they can. But there are other areas of a home sale a seller is concerned with.
No amount of money matters if the sale doesn't close. Sellers want to minimize their risk and be confident the sale of their home will happen in a timely manner, as spelled out in the contract. Offers that are not dependant on mortgage financing and removes a home inspection contingency eliminates almost all of the risk for a seller and makes for an attractive offer.
And finally, they want to close on their terms. They may have a specific timeframe in which they want the house to close or some other terms that might be important to them.
Getting Your Mindset Right
First, it is important to get your mindset right. Understand that in 2021 you are competing with dozens of other homebuyers to secure a good home. You can pretty much expect a good home you see today will be under agreement in a few days. There is also a good chance that the home will go over the asking price.
Your real estate agent representing you as a buyer's agent can provide you market data to help you set realistic expectations. It starts with knowing the market you are in and where the market is headed.
Am I Overpaying For A House If I Offer Over Asking?
Often a buyer is hesitant to offer over asking on a home. But fair market value is determined by what a home seller is willing to accept and what a buyer is willing to pay.
Multiple offers show there are a bunch of buyers right behind you willing to pay close to what you are willing to pay for a home.
Do you think it is better to buy a house that has been sitting on the market for 4 months and you can get $20,000 under asking with no competing offers? Clearly, no one else wants that house.
So in the case of multiple offers market value is established by you and a slew of other buyers.
Don't Think You Can Negotiate
If you know there are going to be a large number of offers on a home, don't think you can negotiate. The uninitiated buyer will often think they will be given the chance to negotiate.
But think like the seller. If you were a seller and had 8 good, clean offers over asking and one under asking with a ton of terms, why would you even want to try and negotiate. It shows you are not serious. Come in with your final and best offer,
Focus Your Home Search On Lower Priced Homes
If you are pre-approved for a certain amount, search for lower-priced homes. This gives you wiggle room to offer over asking and not go over your budget.
Focus your search at $15000 to $20,000 under the amount you want to spend on a home. You will be able to offer over asking a compete with other buyers on the homes you want.
How Do You Know There Are Multiple Offers On A House?
The first question to ask is, will there be multiple offers?
Look at the buyer activity of the home. Are the open houses packed? Were there other showings going on during yours? Lots of activity indicates lots of interest.
But if you should decide to pull the trigger on an offer. Have your agent call the listing agent and ask if they have received offers and how many. I have had as many as 33 offers on one home.
If you are expecting more than a couple of offers on a home you want to purchase, then game on!
Find Out What Is Important To The Seller
When the agent calls to find out if there are multiple offers, have them ask when the seller would like to close. I always ask the listing agent if there is anything else important to the seller.
Maybe they don't want to worry about a home inspection. So you can remove the home inspection contingency or put a limit on repair values like you won't ask for any repairs that total less than $5,000 dollars.
or they haven't found a house to move to yet.... maybe you can structure an offer that gives them time to find a new house.
Give the seller what they want and it just may strengthen your offer. Let the seller know you can be flexible.
Get Your Financial House in Order
Get a strong pre-approval or if you are paying cash get proof of funds together. You will have to act fast and you don't have time to hesitate to get financed. Your finances should be squared away before you even look at homes.
Home inspections and financing are two pieces of the home buying process where a transaction can fall apart. Help the seller feel confident in your financing by getting a solid pre-approval. If you have secure financing and let your seller know, you can compete with a cash offer.
Sell Your House First
In a red hot seller's market, sellers can pick and choose the best offers. And, they certainly are not going to choose an offer with a house to sell contingency. A house-to-sell contingency adds a layer of risk that other offers won't have.
If at all possible, pay cash for the house. If a home has a fair amount of offers you will find one or more of them will be cash.
Cash removes a certain level of risk of the transaction not closing. It removes the unknown of a buyer getting financed by a bank. Sellers love cash. If there is any way you can pay cash go for it.
Include an Escalation Clause
If you are hesitant to put an offer and not sure how much over asking you should offer, consider an escalation clause. An escalation clause can keep you in the game without worrying about offering way more than you have to.
Escalation clauses state you are offering $X amount but if the seller receives a higher offer you are willing to pay $X amount over the next higher offer. And, you put a cap on how high you are willing to go.
Keep Your Offer Clean
Don't be asking for repairs or personal items upfront. Keep your offer as clean as possible. Convoluted offers will just get tossed aside. Especially when the seller has the option to say "next, please".
Remove Your Home Inspection Contingency
The home inspection contingency is a huge area of concern for the seller. It allows a buyer to back out or renegotiate a deal after the terms have been set.
Realize you will be competing with buyers willing to remove the home inspection contingency. Consider being one of those buyers.
Limit Your Home Inspection
Entirely removing your home inspection contingency may be scary. But consider adding an addendum saying that you will not request any non-cosmetic repairs costing in excess of a certain dollar amount.
This could help you have a competitive edge over other offers and could help you compete with offers that have removed the home inspection contingency.
Don't Make Your Offer Contingent On The Home Appraising
In a multiple offer situation, you may find a home pushing past what a bank may appraise it for. You may not be able to pay cash, but you can make the home sale not contingent on the home appraising.
Just make sure you can cover the delta between the purchase price and the appraised price if the appraisal comes in low.
Offer A Higher Home Deposit
Typically a buyer will offer 3-5% as an earnest money deposit when making an offer. Consider offering more.
I had a cash buyer put the entire purchase price in escrow minus 10 dollars. Now if that didn't catch the seller's attention!!
I was told by the listing agent that the seller had slightly higher cash offers but they went with my buyer because my buyer caught their attention with such a large deposit.
Write A "Love Letter"
Write the sellers a letter telling them about you and why you love their home. Don't forget some sellers have lived in their home a long time and have raised a family in that home.
You may just be able to connect with them on an emotional level and help your offer stand out.
Think about it, the seller is taking a risk when they remove their home from the market for a buyer. Often they have spent money to purchase their next home, line up movers, etc... They have a lot at stake. And, having to put a house back on the market after a deal fell through is never easy.
Of course, a seller isn't going to give their house away. The purchase price is important.
But they want to feel secure in the fact their house will sell in a timely manner with no hassles. The more confidant you can make them feel the better.
Don't be afraid to compete when there are multiple offers on a house. Put your best foot forward.
At the same time, some of these strategies are risky for home buyers. You should always talk with your buyer's agent about what strategies to employ and which ones may or may not be right for you.