The bidding wars have been intense lately! My buyers are often ending up in multiple offer situations with offers going well over list price. The latest house I wrote an offer for had 14 offers! I am using escalation clauses, appraisal gaps, free rent backs, and more to help my buyers win offers.
Unfortunately, the seller is king right now. Will this shift? Time will tell (especially as we watch inventory and interest rates). What’s driving this competitive market is the low housing inventory. There are so many buyers vying for the same house that buyers are putting their best foot forward, and then some! So, what are these privileged sellers looking for?
- The most money. I should say the most “guaranteed” money. Anyone can write an offer for over the asking price. If buyers have a mortgage, however, they can only get a loan for what the appraised amount is. This is where the appraisal gap comes into play. The buyer agrees to pay up to a certain amount out of pocket to cover the gap between the contract price and the appraised value. This guarantees the seller that they will get the agreed contract price (or close to it).
- The best financing. Now, we all know that cash usually wins out. When competing buyers have mortgages, the seller is looking for the best financing. This typically includes a conventional loan or a portfolio loan. For government loans, such as FHA loans, the appraiser can call for repairs. These repairs have to be completed by the seller before the loan gets approved. So, when there are multiple offers, most sellers will lean toward a conventional buyer who is putting down a substantial amount. This avoids the whole repair scenario.
- A large deposit. When an offer gets accepted, the buyer puts down an earnest money deposit. This money is credited back to them at closing, but it is also the amount the buyer risks losing if they walk away outside of a contingency. Some buyers think putting a few thousand dollars down is good. In a multiple offer situation, it is better to put down a high deposit to show the seller that they are serious buyers.
- No inspections. Sellers want to sell their home for the most money and the least hassle. Every home, no matter how well it’s been taken care of, will have a list of repairs and maintenance items that should be done. An inspection report can range from 40-120 pages. The inspector has to list every single item he finds. A seller knows that the buyer may come back with a list of repairs they want done. It can open up more negotiations on prices as well. So, if offers come in waiving inspections, sellers are more apt to accept these.
- Any special terms. Some sellers need to close on a certain date. Some need to find housing, or need a rent back period until they buy their new home. Adding these terms to your offer is important to getting it accepted. In a multiple offer situation, the more terms that meet the seller’s needs, the more chance of getting your offer accepted
It may feel like seller’s have an unfair advantage right now, and in many cases they do. Instead of feeling frustrated, write offers with determination. Look at your current situation to see what you can do to make your offer as strong as possible. Work closely with your realtor on strategy. The perfect home is out there for you.