How to Compete with Multiple Offers on a House
In a strong seller’s market, as we’ve been experiencing in the Dallas Fort Worth metroplex, the low housing inventory often leads to multiple offers on homes. I’ve had clients competing against sixty-plus offers on properties, and landing a contract is like winning the lottery. While that scenario is frustrating, there are things a buyer can do to make their offer as sweet as possible and hopefully win favor with the seller.
How to Win a Bidding War on a House
While there are lots of ways to sweeten an offer, at the end of the day, the buyer has to be able to afford the terms. I like to have conversations with my buyers before we ever make an offer so I understand their financial situation, I know their limits, and I can evaluate the best ways to make their offer stand out without compromising their goals.
Find out what the seller needs.
The first step to making an offer as appealing as possible is to find out what needs the seller has. Are they wanting a quick close? Do they need a leaseback? Meeting those terms, if possible, will help push your offer to the top of the pack.
Bring cash.
Cash is often king. If you can put down all cash on a house, you’re probably going to rise near the top of the offers. Cash eliminates financing and appraisal issues that may arise and also allows for a quick close. However, even bringing all cash doesn’t win you a house unless you’re willing to make a competitive bid.
Make the financing look as appealing as possible.
The majority of people aren’t able to buy a house without financing but there are ways to make a financed offer more appealing. The higher the down payment, the more financially sound the offer appears. And while a buyer can choose any lender, I always point out if my buyer client has a local lender. It generally makes communication easier and I’ve noticed a correlation between local lenders and more reasonable appraisals.
Sign a full or partial appraisal waiver.
Since we touched on appraisals, let’s talk about the appraisal waiver. This is a document I often include on offers in a competitive market. A lender won’t give a buyer more money than a house is worth. In a strong seller’s market, where offers are being made tens of thousands of dollars over list price, the sales price of a home often exceeds the appraisal value. In the appraisal waiver document, a buyer can agree to bring more cash to the closing table to make up the full or partial difference between the appraisal value and the agreed-upon sales price of the home.
Increase the earnest money.
Earnest money is money given, by the buyer, to the title company within the first three days after a contract has been executed on a property. It’s a show of good faith that the buyer intends to follow through and purchase the property. In the Dallas Fort Worth market, earnest money is typically one percent of the sales price. When trying to make an offer look as appealing as possible, increasing the amount of earnest money is a simple tactic. It shows seriousness of intent because the earnest money will be lost if the buyer backs out of the deal after the option period, but it’s not super risky for a dedicated buyer because it will be returned if the deal falls through during the option period.
Increase the option money.
Increasing the amount of option money put down upon an executed contract is another way to sweeten a deal, however, it’s riskier for the buyer. If the buyer finds something they don’t like during the option period and walks away, they lose the option money. If they move ahead with the deal, both option money and earnest money go toward the final costs of purchasing the home.
Skip or shorten the option period.
A buyer may also opt for no option period at all. I recently had a seller that received an offer with no option period and that offer was accepted, despite not being as high on the sales price. While I loved seeing this offer as a seller’s agent, I don’t recommend this to my buyers unless the home is a known fixer-upper and the buyers have a pretty good idea what they’re getting. Otherwise, the option period is far too valuable for finding out exactly what the buyer is purchasing. Shortening the option period is always a consideration, though. Dropping from the standard seven days down to five, or even three {if you know you can line an inspector up quickly}, can make an offer look better to a seller.
Skip the home warranty.
Leaving a home warranty out of the offer doesn’t mean you can’t have a home warranty at all, it simply means you’re not going to ask the seller to pay for it. It’s not a large sum of money but it’s still money back in the seller’s pocket and every little bit helps.
Cover the survey.
If the seller doesn’t have a survey available, a new one is typically ordered and the cost is covered by the buyer or seller, depending which box is checked on the offer. Again, it’s a small thing but it increases the appeal of the offer if the buyer agrees to pay for it.
Pay for the title insurance policy.
It’s fairly standard in our market for the seller to cover the cost of the title insurance policy, but when you’re trying to make an offer stand out, this is another area where you can make concessions. If the buyer has the means, the buyer can pay for this, or the buyer and seller can split the cost.
Offer a free leaseback.
This falls under knowing the seller’s needed terms but leasebacks have become increasingly common. If a seller needs a little extra time in the house, offering a free leaseback {requiring no daily rent} is a gift from the buyer to the seller. I do still typically request a deposit on the leaseback, as a way of protecting my client from any damages that may occur in the home after the final walk-through.
Write a letter.
Some agents hate letters that accompany offers and some agents won’t even show them to their clients but I think it’s an easy way to add one last bit of effort to an offer … and I’ve seen them work for my sellers and buyers. Most sellers are emotionally invested in their home and want to know that the next owners are going to love it just as much. Adding a personal touch to an offer is sometimes the thing that gets the deal done.
Be patient and persevere.
And what if you try everything and still don’t land the house? Keep at it. Buyer fatigue is a very real thing in this market and perseverance and patience are needed. One day you’ll have the winning bid on the house of your dreams!
