As we head into the busy Spring home buying season in Austin, we’re starting to see more multiple offers. As the season progresses, I would expect to see more. Buyers who want to eliminate the frustration of losing a home to another buyer need a carefully thought out multiple offer strategy. To be successful, the first step is to think like a seller when crafting your offer. Knowing what the seller wants, and accommodating when you can, will increase your chances of becoming the owner.
What is a Seller Looking for in a Multiple Offer Situation?
Though this can be dependent on the seller and their needs, there are some things that most sellers generally want. The two most common themes are more money and the highest certainty of closing. Here are some of the most common aspects of an offer a seller will look at when making a decision in a multiple offer situation.
Highest Net Offer
The number of dollars in the seller’s pocket is usually one of the most important factors in determining who is the winning bidder in a multiple offer situation. This is a net number, after all fees have been paid, which is different than the price you offer. If you are asking the seller to pay for closing costs, survey, home warranty or other customary buyer costs, subtract that amount from your offer price to get the seller’s net number. Keep in mind, a $400,000 offer with $10,000 in seller paid closing costs is really a $390,000 net offer. Need to ask for closing costs? Here are some strategies for asking for seller paid closing costs.
Cash offers are not contingent upon financing, so they are the most certain for a seller. After a cash buyer gets through their option period, there is very little that will prevent the deal from closing. As a seller, eliminating as much of the uncertainty possible gives piece of mind. When comparing offers, a competitive cash offer will usually beat out a comparable offer contingent upon financing. If you are in the position to pay cash and find yourself in a multiple offer situation, it will give you a huge advantage.
Highest Down Payment
A larger down payment means less uncertainty with the buyer’s loan. Low down payment loans are great for buyers, but sellers worry even slight changes in the buyer’s financial situation or interest rates will cause the deal to fall apart. A higher down payment means lower loan to value ratios and less red tape from a lender. For a seller, the least amount of uncertainty, the better.
Shortest Option Period Possible
The buyer has the right to cancel the transaction for any reason during the option period. Sellers are looking to make this time period as short as possible to minimize the time they are obligated to sell their home to a buyer that ultimately will not buy it. Buyers should ask for the shortest option period that will allow them to complete inspections and negotiate repairs. Long option periods indicate a buyer is not 100% committed to the property and want to keep their options open. Work with your experienced buyer’s agent and inspector to determine the appropriate length of your option period.
Shortest Financing Contingency
Another period of uncertainty for a seller comes during the buyer’s financing contingency. The contract gives the buyer a certain number of days to obtain loan approval. If a buyer cannot secure financing, they won’t be able to buy the house and will likely have to cancel the contract. A buyer can demonstrate credit worthiness and certainty of closing by completing as much of the loan approval process before they make an offer. This way, they’ll be able to ask for the shortest financing contingency. Buyers should work with their lenders to determine the shortest period of time they need for credit approval.
Increased Earnest Money Deposit
Depositing more earnest money is another sign a buyer is very serious about the property. The earnest money deposit is held by the title company (a neutral third party) and will be returned to a buyer if he/she cancels the contract during the time periods allowed. To the seller, this money offers some assurance the buyer will not breach the contract. The more earnest money a buyer deposits, the more serious they look in the seller’s eyes. A buyer’s earnest money will be at risk if they breach the contract, so discuss this one with your experienced buyer’s agent before you commit more earnest money.
Increased Option Fee
The option fee is payment to the seller for the right to cancel the contract. If you exercise that right, no matter the reason, the seller keeps the option fee. Offering an increased option fee tells the seller you do not intend to cancel the contract for frivolous reasons. An experienced buyer’s agent will be able to give you guidance on the appropriate option fee for the neighborhood and price range.
Quickest Closing Possible
This one is especially important if the property is vacant, but can also be important to a seller still living in the property if they are on a tight timeline. A seller might look more favorably on an offer that gives them their proceeds a week or two sooner. If you are obtaining a loan for the property, ask your lender how quickly they can process the paperwork and close the transaction.
As it gets more and more difficult to find a home, we are seeing more seller’s request time after closing to live in their home. They want the transaction closed so they can have the money in the bank for the down payment on their next home. Buyers who are able to allow them the flexibility to stay will often be more likely to be the winning bidder.
I recently represented a buyer in a transaction where a seller was willing to take $5,000 less for the property if they could stay an additional week. Last time I checked, a week at the Four Seasons was less than $5,000, but for some reason this seller didn’t want the hassle of moving twice. Another seller was looking for a house and wasn’t able to find one by the time their home went under contract. My client was willing to offer the seller a lease back and let them stay in the property after closing. Though they weren’t the highest offer, they were the most flexible and the seller took less money to eliminate the hassle.
Consider Paying Seller Paid Closing Costs
Though all terms of a real estate contract are negotiable, the owner’s title policy, home warranty and survey have customarily been a seller expense in the Austin real estate market. If you’re serious about the property, and can afford it, consider paying the seller’s closing costs. In some cases, offering more money for the property might not be looked at as favorably as paying a seller’s closing costs. An experienced buyer’s agent will help you determine which situations it makes more sense to offer to pay the seller’s closing costs versus offering a higher price.
How Important is Price?
To most sellers, price is the most important factor. If they are flexible with move-out dates and don’t have any time pressure, they might simply choose the offer that gives them the highest net number. But, the reality is a great percentage of sellers are looking for something else in addition to the highest price. If you find out what the seller needs most and can offer that to them, you might be able to pay less for the property.
Make Sure Your Buyer’s Agent Asks What’s Important to the Seller
A knowledgeable and experienced buyer’s agent will always ask if the seller is looking for anything specific in an offer. In a negotiation, if you can understand what they other party is looking for, that might give you some insight to how to craft an offer that will be more favorable. You’d be surprised how many buyer’s agents don’t ask about the sellers needs and that puts their buyer at an extreme disadvantage.
Knowing the Sellers Priority List Can Help Save Buyers Money
Always assuming the seller is looking for the highest price can be an expensive mistake for buyers. Though price will always be important, sometimes there are other factors that would make the sellers transition easier. Those things might be worth more than money to them. Here are a few examples.
Can’t Offer All of these Terms? Do What You Can
Just because you can’t, or don’t want to offer all of these terms to a seller doesn’t mean you shouldn’t make your offer. Multiple offers are blind bids and you won’t know what the other buyers are willing to offer. If you like the house enough to see yourself living in it for a certain dollar amount and terms, make the offer and see what happens. If you don’t and find it sells for less than what you would have paid, you will be kicking yourself.
Multiple Offers are Common in Austin
Unfortunately for buyers, multiple offers are going to be the norm in the Austin housing market for some time to come. Multiple offers can be frustrating, but they are not impossible to win with a carefully crafted strategy.
Work with an Experienced Buyer’s Agents who Have Strategies for Multiple Offers
Experienced buyer’s agents have strategies to help their clients win in multiple offer stations. Our team has experienced multiple offers in the competitive San Francisco Bay Area market as well as the Austin market. In fact, my entire career has been in markets where multiple offers were the norm. We have perfected several strategies that help buyers position themselves to win a multiple offer competition and can help you be successful too. For more tips on multiple offers, check out our post How to Succeed with Multiple Offers.
Looking to Buy a Home in Austin?
If you’re looking for a buyer’s agent who will listen to what you want, not hard sell you the most expensive home you can afford, we might be the right buyer’s agents for you. Our team has a combined 60+ years of experience in competitive real estate markets and can help you achieve your dream of home ownership. Check out our Austin Home Buyers section to learn more about our team. Then, call us at (512) 827-8323, email us at info@11OaksRealty.com or fill out our Buyer Survey to get started.