If you’re buying or selling a home in Southern Illinois right now, you’re probably aware that it’s a seller’s market. Low interest rates and the soaring price of lumber are both playing a part in this current market phenomenon. With the high price of lumber and other building materials, many buyers interested in taking advantage of low interest rates are turning to pre-existing homes rather than taking on the extra costs associated with new construction.
Currently, the number of potential buyers exceeds the number of available properties on the market, so it’s not uncommon for a seller to receive multiple offers. This scenario can be tough for both buyers who are facing offer rejections at a higher rate than usual and sellers who are having to make judgement calls on which buyer is the most likely to close the deal.
Put Yourself in the Seller’s Shoes
For a buyer, it’s important to understand a seller’s perspective. First, there’s not a rule in place that says a seller must give all offers the same consideration. When sellers receive an offer they like, they can accept it immediately and reject the others for various reasons. (And no explanations to buyers are required.)
The seller has the most control when it comes to deciding among multiple offers. They can do one of three things: 1.) Accept the offer with the most favorable terms and reject the others. 2.) Counter the offer with a price and terms that are more desirable to the seller and either reject the others or put the others on hold while they negotiate the favored offer. 3.) The seller might also request that buyers submit their highest and best offers by a certain date and time. Once the offers are received, a seller can decide which buyer they want to work with based on the highest and best contract specifics. Once the seller and buyer come to terms, the sellers’ agent notifies the other buyers’ agents that their offers have been rejected.
Multiple Offers Can Be Risky for Sellers
While the seller does have a lot of control in multiple offer situations, they must also remember that some buyers aren’t interested in becoming a part of a bidding war. If a seller opts for the highest and best request option, they run the risk of losing one or more buyers in the process. Sometimes bidding wars work well for sellers; other times they don’t. It’s important for a seller to understand the risks when making decisions.
Putting Together an Appealing Offer
So what do sellers look for that would make a buyer’s offer more appealing? Obviously, cash offers are more appealing than offers being financed through a lender.
Conventional loan offers are more appealing than FHA, VA or USDA loans because they have requirements conventional loans do not. Also, with a lender, there’s no guarantee that the buyer can actually obtain the loan. Preapproval and prequalification letters are not 100 percent assurances and financing can fall apart up until the day of closing. While this doesn’t happen often, it does happen.
A cash offer above asking price is even more appealing. But how much higher than the offer price should a buyer go? That’s a tough question for any buyer’s agent to answer. It’s a financial decision based on your ability to pay more without creating financial hardship for you or your family. It’s also a personal decision based on what the property and its features are worth to you.
Market Value Vs. Personal Value
While an agent can determine a market value range by looking at previously sold comparables, it’s harder for that agent to determine personal value for you as a buyer. For example, say a $200,000 property has an inground pool. One buyer might not want that pool, so that feature has very little value to him or her personally. In fact, it might make it hard for them to justify offering asking price, let alone offering over asking price. For another buyer who wants that pool and would spend $50,000 to 60,000 to add an inground pool, it might seem completely reasonable to offer another $10,000 or more over asking price.
Ask Questions; Understand Seller's Motivations
In other instances, an appealing offer for a seller is less about money and more about other terms. Was a pre-approval letter provided with the offer so the seller knows the buyer is serious enough about buying a house to have taken the initiative to talk with a lender?
Maybe the seller needs to close within 30 days or maybe the seller is building a new home and needs a closing period longer than the usual 45 to 60 days. Either way, if your offer allows the seller to close within a more favorable time frame for personal needs, you may become the perfect buyer, even if your offer is a few thousand dollars below another offer.
Have your agent ask plenty of questions up front about what kind of offer the seller is looking for so your first offer is desirable to a seller. You should go into any offer situation with the understanding that the seller may reject your offer and never give you the opportunity to provide more favorable terms.
Some buyers who have experience with home construction and/or repairs may be comfortable buying a home without inspections. This can also be appealing to a seller since inspections sometimes create further costly negotiations after contract acceptance. Your real estate agent would be uncomfortable recommending this negotiating tactic, but if this is something you’re comfortable doing, please remember to mention it to your buyer’s agent. Again, that is a personal decision based on your abilities with spotting repair issues during your initial home visits.
Other Deal Sweeteners
Other ways buyers can sweeten deals for sellers:
Shorten the inspection period so if there’s an inspection issue you can’t live with, the seller’s home is not off the market for an extended period.
Only ask for what the seller is offering on the listing sheet. If the listing sheet says the range, microwave, dishwasher and refrigerator are included, don’t ask for the washer/dryer or other personal items the sellers aren’t planning to leave with the house.
Up the amount of earnest money offered. Earnest money doesn’t change your bottom line at closing since it’s credited back to you, but a higher earnest money amount shows the sellers you’re serious and willing to put more on the line to have their property.Â
If you can afford to pay your own closing costs, refrain from asking a seller to pay all or a part of this expense.
If you’re wanting a home warranty for added peace of mind, pay for it yourself and avoid creating another expense for the seller.
Seek Advice
If you have fallen in love with a property and there’s potential for multiple offers, listen to your House 2 Home Realty agent’s advice and guidance. Also, listen to your lender and/or financial advisor’s wisdom. Together, they all can guide you on making the most realistic and favorable offer possible. You may prevail in a multiple offer situation or you may not, but at least you won’t have regrets that your offer could have been better.