Multiple Offers Impact Buyers … and Sellers

April 4, 2014 | Buying

Multiple offers on a given property become common any time we enter a strong seller’s market. This phenomenon can create frustrations for buyers. Less appreciated is the fact that it can create headaches for sellers too.

This multiple offer situation is new in the sense that it is different from what we experienced in 2008 through 2012. However, it is not new in that we have been through strong seller markets in metro Denver in the past. We know how to deal with this circumstance and good agents bring this expertise to the table.

First of all, let’s define a seller’s market. This is typically done by looking at the number of months of inventory on the market at any one time compared to how many homes are selling a month. Markets with inventories of 4 months or less favor sellers while inventories of 8 months or more favor buyers. Balanced markets have 5 to 7 months of inventory.

For example, imagine that there are 10,000 homes on the market and that 2,000 homes close every month. The currently available homes represent 5 months of inventory – 10,000 homes available divided by 2,000 home sales per month = 5 months of inventory. In other words, all homes currently on the market would be sold within 5 months if no more homes came on the market and buying activity continued at a stead pace of 2,000 per month.

A strong seller’s market will exist when there is 3 months or less of inventory on the market. That situation existed in metro Denver for at least the first seven months of 2013 and is currently in place again here in early 2014.

For buyers, the problem is obvious. You are often competing with other buyers for a given property. The tendency is to just focus on price and to offer more and more money. However, there are other ways to compete. At Colorado Home Realty, we’ve identified seven different tactics that can help you as a buyer win the multiple offer war that have nothing to do with price. These techniques range from full and complete loan pre-approvals to modifying and waiving certain contractual rights while still leaving you protected.

The problem is less obvious for sellers. Sellers typically imagine the advantages of a bidding war. The problem we are experiencing is that we can win the bidding war and lose the appraisal battle. We have many situations where there are multiple offers and all the offers are over the asking price. The seller takes the highest offer but the appraisal comes in below that highest offer price. When that happens, the buyer can try to renegotiate the contract and can terminate the contract without penalty if a seller will not renegotiate.

It is always best for a seller to focus on all the other variables in an offer other than price. Multiple offers give us the ability to negotiate on other items besides price. For example, we can see if buyer’s will waive their appraisal contingency and agree to buy the house at the contract price regardless of the value given by an appraiser. We end up looking for the highest offer where the buyer is willing to do that as opposed to just the highest offer that may leave us subject to a defeated contract when the appraisal does not match the sales price.

As with buyers, we have half a dozen strategies like this to help sellers make a wise choice from among the multiple offers. These techniques allow us to use our negotiating leverage to not only get a higher price but to also achieve a higher certainty of getting to a successful closing.

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