Multiple Offers on Real Estate
Oct. 13, 2014
by Teresa Larson, Village Real Estate, Murray, Utah
20+ years real estate experience
Buyers in our market need to be aware that they most likely will have to deal with a multiple offer scenario when the perfect home is found and a contract written up. It is sort of ironic but a property will come on the market be there for a couple of weeks to a month or so and then bam all of a sudden there are three or four offers. Sometimes this happens within the first week of the listing! As a buyer if you see a home you like, it is best to go ahead and write up a contract. If you take too much time thinking about it someone else will snap it up. As an agent I hate in when the first home I show is the perfect home because it is hard for buyers to jump on that home. I always encourage buyers in these situation to go for it but it is ultimately their decision. You do not want to be comparing all the future homes you see to the one you lost because you didn’t act fast enough. Multiple offers can be tricky and you have to be prepared to keep looking if your offer is not the one chosen by the seller.
Homes for Sale are Priced at the Perceived Market Value
Even though an offer sounds good because it has the highest price to a seller there are potential problems with picking the highest priced offer. The main problem being; you will need to get an appraisal for the amount of the sales price unless the buyer plans to bring in extra cash for the amount over the sales price. Most buyers have the home purchase figured out to the penny and are not going to have additional money over the planned down payment and closing costs. When a property is listed for sale generally the seller and their agent have looked over recent sales of similar homes, a comparative market analysis has been done to help a seller choose the price to list the home at. The home has been priced at the perceived market value.
When real estate agents help sellers price their home they take into consideration current market conditions which can either be improving or declining. Appraisers will have a more analytical approach and will consider market conditions too. When an offer comes in over list price it is a bit of a red flag. The appraiser will try and justify the price of the offer but if they feel the value is not there they will send in a lower appraisal. The appraisers are on the line when it comes to their value conclusions for a property. They must meet strict guidelines and the appraisal must pass a review process which includes making sure that the comparable homes used in the appraisal have sold for similar values as requested. The comps used need to be a in similar condition, style, age and size of the home that is being appraised. The homes selected for comparables in an appraisal also need to be within a reasonable distance (preferably one mile) of the appraised home you are purchasing.
Appraisal Standards and Market Fears
The interesting thing about multiple offers is that due to the lack of housing inventory the market becomes inflated quickly by buyers making offers that are over the list price of the property. This has historically been repeated in the past several times. Most recent was just prior to 2007. During the process of buyers offering more than list price and the shortage of available properties at the time, prices climbed to unhealthy highs. Prices rose over 25% year over year in most of our area. People that watched the numbers cried of future doom and sure enough it happened. We do not have that same situation now due to constraints and limitations put on the lending industry. Lenders and appraisers have been held more accountable for what is approved at the mortgage companies and banks. This is the reason that appraisals are sometimes hard to get at the offer price.
Ideas for Buyers
Sellers will do better choosing an offer that has fewer paid buyer closing costs. In today’s market many buyers need help from the seller with closing costs. If you can save up enough money for down payment and closing cost without asking for the seller to pay some of your closing costs you will be one step ahead. The seller will be looking at their bottom line net so a higher sales price not over say 3% might be a little easier to get an appraisal for. If you as a buyer can come in at a slightly higher price than the list price and ask for very little closing it just might be a better offer for the seller. There won’t be as much worry about appraisal problems. We are seeing offers $10,000 and more above list price but many times they are asking for the seller to pay all of their closing costs. When you find the home you like make your first offer the best offer in today’s market. Unless you are looking at homes priced over $400,000.
Ideas for Sellers
Some buyers may make an initial high offer thinking they can barter the price down during the inspection period. This is one reason it may be a good idea for you as a seller to go ahead and have an inspection done so you have an idea what you might have to deal as far as repairs. As a seller you do not have to make requested repqirs but there could be some repairs needed that would stop a sale from happening due to the lender property condition standards. As a seller maybe you would want to take care of some major concerns and even share the inspection with perspective buyers.
Choosing the Best Offer
When choosing the best offer consider how much money the buyer is putting down and the type of loan a conventional loan will have not have as strict of property standards as an FHA loan. This could make an offer more appealing. Make sure the buyers have been pre- approved including their funds have been verified for the down payment and closing costs. Make sure their credit and income have been verified and approved for the purchase price by their lender. You don’t want a pre-approval letter that says the buyers are approved based on the information they have provided to the lender. You want a buyer that the lender has verified their income, money for down payment and acceptable credit. Knowing all of these things will prepare both a buyer and a seller for a better experience with multiple offers.
©Teresa O Larson PC, 2014