What happens when you are selling a house and you find yourself in multiple offers?
This is becoming more and more of a thing these days as the real estate market improves while the supply of available inventory remains constricted. It’s a little like the Wild West. I recently had four listings go into multiples. In each case, my clients sold for more and secured better terms than they thought possible. This wasn’t by accident, (Contact Tim here) so let me share how we handled each one.
Listing #1 had been on the market for quite a while, when as sometimes happens, there was suddenly more than one person that wanted the home at the same time.
Now I don’t know why this happens, but any seasoned real estate veteran will tell you it’s almost like something happens in the “ether” and a home that’s been sitting, suddenly gets really hot. Often it’s totally out of the blue and bam, there are two offers on the same home.
When a home is in multiple offers there are several different ways to handle the negotiations. Some agents will choose the method the banks used when they would have 30 offers on a property and send out a counter of “Best and Final.” This is basically creating a blind auction where all potential buyers submit their best offer in a “take or leave it” fashion and then the seller selects the one they favor the most. Quick note: Remember that when negotiating a sale we are negotiating price and terms. Terms can sometimes dictate the winner in multiple offers over price. An example would be when one offer is lower but is all cash. A seller may take that offer even though it isn’t the highest price because it had superior terms. I am not a fan of “Best and Final.” While some buyers prefer it, most hate it. The feeling is, that if a seller would just counter offer them with their number, a buyer can decide if they want to accept or not. Some agents feel that “Best and Final” will get the seller the real market value of the home. Myself, I prefer to send out a number. The seller has a number in mind, they always do. And while they might romanticize about going over that number when in multiple, more often than not they are better off pursuing their number and be satisfied if they get close to it.
So with listing #1, Buyer B out offered Buyer A by just a few thousand dollars but what sealed the deal was that they also offered a multiple month lease back so the seller could find a home and fix it up if necessary. The time “term” coupled with the higher price made the decision pretty obvious and Buyer B got the house.
With Listing #2, we had 3 offers in the first 3 days, but all were low.
Because there were more than two we chose the “Best and Final” approach. However, this didn’t work because none of the offers came up to our number. Thus we were back to square one. I kept the channels of communication opened with all 3 buyers and with the seller’s permission, told all the potential buyers what the seller’s bottom line or “Magic” number was. A week later, one of the buyers stepped up to that number and got the house. The other two were disappointed because it was only 1% above their original offers. In this scenario, the agents that represented the buyers that didn’t “win” either didn’t do a good enough job of demonstrating the silliness of losing a home over a handful of dollars or the buyers just weren’t educated enough in the market. Many times a buyer has to lose a few homes before they realize that they should listen to their agent…
Listing #3 saw ultimately three offers too, but unlike #2, all the offers were at or above ask.
In this example an offer came in immediately at full price. All they asked was for a quick reply. However before the seller could reply a second offer came in but this one was contingent on the buyer closing on their home that just went into escrow. Knowing that their offer would be inferior as compared to a non contingent offer, they wrote $10K over ask. Smartly played by them. While we mulled over these two offers a 3rd offer came in all cash, $11K over ask. Wow. Seems obvious right? Take the higher all-cash offer. But that’s not what happened. Because Buyer A did not have the knowledge that we were in multiples when they wrote like buyers B and C did, the seller felt compelled to let Buyer A rewrite. The cash buyer had never actually been in the home. They were late to the party and didn’t get in before the deadline so they wrote sight unseen. This posed a risk that the seller wasn’t comfortable with. The acceptance of the contingency of Buyer B only made sense if Buyer A wouldn’t come up, so I asked the seller, “If I could get Buyer A up to contingent Buyer B’s price, would the seller accept Buyer A’s offer?” She said yes. I then clarified with the seller that it would be OK to tell Buyer A what the number had to be to win and she said that was OK. Now you may be thinking, “Wait a minute. You told Buyer A what Buyer B’s offer was? You can’t do that, it’s confidential.” A reasonable response for sure, but not correct. Remember who I work for. I work for the seller. My job is to get the seller the best possible price and terms. “But you have a fiduciary responsibility of fair dealing and in good faith,” you say. Not exactly. I have a fiduciary duty to the seller, not to the buyer. To the buyer I have a duty of honest dealing and good faith and confidentiality of offers is not a requirement unless specifically asked for in writing by the buyer and agreed to by the seller. This did not happen, so there was no violation of my fiduciary duty to the buyer and the seller authorized the price disclosure to Buyer A. While this might strike you as unfair, consider the seller’s reasoning: Buyer A was non contingent and agreed to come up in price, a better deal for the seller. Moreover the seller felt that Buyer A stepped up first and therefore deserved the opportunity to get the house if all things were equal. Conclusion: Buyer A got the house and the seller got $10K above ask and felt good that Buyer A got the house since they stepped up first.
Listing #4 had received a blind, unsolicited offer before ever coming on the market from a neighbor who heard about the upcoming listing.
Because the buyer had no idea what the asking price was going to be, their offer was low. Nothing came to pass at this point because the seller wanted to wait until they hit the open market, though we did tell them what the projected asking price was going to be. Then another potential buyer appeared also before we went on the market. Still the seller wanted to wait to go on the multiple listing before entertaining any offers. At this point we sensed that based on the level of interest, perhaps our asking price was a little low and subsequently raised the price from what we’d told the neighbor we were listing at. On the market we go (Search all available listings here) and a week passes with nothing. No offers and only a few showings. At first glance it appeared that perhaps we’d over shot on the asking price. However during week two the showings picked up. The neighbor must have sensed this because they came back with a better offer, but still below ask. This did not please the seller so they didn’t rush a counter back rather waiting to the day of the offer’s expiration to respond. The seller came back to the neighbor with a counter that was below ask. However rather than accept, the neighbor still wanted it for less and though they increased their offer some, they were below the seller’s counter, not pleasing the seller. Then it happened; that “ether” thing again and a 2nd offer came in at a higher price. Complicating the matter was a rent back option that the neighbor’s offer contained. So the seller asked if I could find out if Buyer B would consider matching the rent back terms and to my surprise their agent said yes. So now our terms are the same for both and we counter, but above the counter we had previously made to the neighbor because the situation had changed. In this particular case the seller countered both buyers the same, but this is actually not required in a multiple counter and in fact many times some specific terms or omissions necessitate a different counter. Out the multiple counters go. Neighbor counters us again below our counter while Buyer B accepts. Buyer B got the house and seller got almost ask with amazing terms. By detailing out the specific counter number and the desired terms rather than “Best and Final,” my seller got just about everything they could have hoped for. Interestingly, the seller did ask, can we go back to each and ask them to come up even further if they both had accepted our counter. I said yes. However, while this potentially could yield them a higher number, it could very possibly blow up in their face with both buyers deciding they didn’t like dealing with the seller and both could walk. This happens, I’ve seen it and it’s pretty upsetting for everyone, not the least of whom is the seller who’s left with no buyer at all. To make this point I will tell a seller the Aesop fable about the dog with the bone, also known as The Greedy Dog. If you’ve not heard it, the story goes like this: A dog has a bone and while walking across a bridge he sees his reflection. Not realizing it’s himself in the reflection, he lunges for what he perceives is a superior bone in the mouth of another dog, dropping his bone in the process and ending up with nothing but a mouthful of water. This usually gets the point across and we make the deal.
Finally I’d like to leave you with is this: These 4 examples are all real and all from the last month. When you make the decision to sell your home, there are going to be a multitude of potential scenarios and situations. Each will offer opportunity and each offer challenges and each is a little different. In other words, real estate is full of variables. Managing negotiations is a craft and an expertise. Unless you sell homes for a living, finding and hiring a top level, experienced real estate agent is critical. Your home is your biggest investment and you can’t afford to mess around. Having a strong agent who not only knows the market, but knows how to market and knows how to handle intense and complex negotiations, is essential to getting top dollar and the most favorable terms. This skillset is what makes some agents great and others not and you should be prepared to pay a little more to have them on your side. But if you do, you’ll increase the odds that you’ll get more for your home and that you’ll have a smoother transaction. There’s an old adage in sales that experience doesn’t cost, it pays. This has never been more true, than it is in today’s challenging multiple-offer-world of real estate.