Written By: Gary Swang
https://www.biggerpockets.com/blogs/7605/73621-how-do-sellers-handle-multiple-offers
Whether you’re a Buyer OR a Seller do you ever wonder how Sellers handle multiple real estate offers? Which bid do they choose? If you’re a Buyer, why wasn’t your offer chosen? If you’re the Seller, how do you navigate through multiple offers? These are hard questions to answer and especially so in today’s market where the number of viable buyers exceed the number of available properties. In my last blog I discussed strategies to use when Buyers are trying to “Bid It To Win It”. And in this blog I will attempt to give reasoning, not answers, behind a Seller’s decision when faced with the dilemma (and excitement) of multiple offers.
So it might sound like a no-brainer to pick the highest $$ offer, right? Well, not so fast. There are many factors that Sellers consider when choosing. Some pick right away and others wait hoping to get even more offers. But when faced with a multiple offer situation, Sellers really don’t want to wait too long as Buyers could pull their bids. Often, all cash offers are gold and win every time. But it’s not often that Buyers come with an all cash offer, so a Seller must look at things like the type of loan, contingencies and inspections requested, seller assistance if any, hand money offered, days to closing and, of course, the offer price compared to the list price. This is often when careful consideration and a lot of calculation comes into play by the Seller.
Let’s consider these scenarios. A property goes on the market for $225,000, and there are 4 bids. The first one is full price, conventional loan, no seller assist and a 60 day closing. The 2nd offer is full price, FHA loan, 6% seller assist and a 45 day close. And the 3rd is $227k, VA loan 3% seller assist and a 45 day close, and finally the 4th one is asking price, all cash and a 90 day close. Which one would you choose immediately at face value?
Seems easy to just pick the highest offer or maybe the all cash offer, right? But there are always more things going on behind the scenes for the Seller so they typically pick the “best offer” for them. Things like their moving situation, contingencies elected or not elected by the Buyer, earnest money offered, convenience and even time of year. These factors can answer why a Buyer’s offer, even if the offer price was higher than others, was not accepted…and why Sellers have a lot to consider in choosing the offer that is “right for them”. This is where the assistance of an experienced Realtor can help sort through the various offers and the terms associated with each. While it may be pretty straightforward to compare 2 offers, here in Pittsburgh, PA and in many others areas, we are experiencing situations of 5 or 6 offers where the terms are very unique. (I just submitted an offer on a $125,000 home where there were 8 other offers! It’s crazy!! And yes, we lost out…due to seller assistance needed for my client. But since then we have an agreement on another property that is moving forward positively). Sellers want to know what their expenses and net proceeds will be in each scenario and their Realtor will break it down. While you may never know what makes a Seller pick one offer over the other, having the most complete information about that particular deal can only help you as the Buyer. With multiple bids, Sellers often come back and request highest and best, so some, if not all of the bids are subject to change. And a Seller can always counteroffer one offer while setting the others aside or rejecting them. But getting to the point of having multiple bids requires that Sellers first list their homes at a fair and competitive price.
Sure competitive makes sense, but why talk about a fair price? In a hot Seller’s market where demand is high and supply is low. Some may feel tempted to list their homes or investment properties way above market price. However, doing that could turn Buyers away and cause the property to sit much longer, no matter how much you have invested in renovating it. Also, and extremely important, is that the house may not appraise if priced too high. If the appraisal comes in under list/sale price, then #1 the mortgage company may not approve the lending for the Buyer and #2 either the Seller or Buyer will have to consume the difference if they want to keep the deal together. A property not appraising could kill a deal. Likewise, pricing extremely low to drive Buyer interest might be a good strategy to get multiple offers, but what if you only get 1 offer?? Pricing slightly lower on a property to generate interest might be effective, but what if you later regret pricing it too low or misunderstand your outstanding loan balance or closing costs? While the strategy of pricing low could pay off, it could also backfire. So even in a Seller’s market, price it right and you will likely win every time.
Even in an idealistic market, Sellers have to be cognizant of many factors and especially so when dealing with multiple offers. Don’t go it alone as you may find by enlisting the services of a real estate professional you could actually save money and keep yourself legally compliant. Priced right, attractive to buyers and in a great location, your home or investment property has a strong chance of entertaining multiple offers. Good Luck! Appleton Home Sellers handle offers in different ways, but I hope this article was beneficial to helping make the best decision.