In a bidding war, help your sellers think about more than money.
Originally posted in May 2017 by Judith Crown at RealtorMag.REALTOR.org.
Juggling multiple offers is an enviable problem to have, but it isn’t always easy territory to navigate. For clients who think the highest bid is the default choice, it’s important to explain that price is just part of the calculation. Other factors include move-in timeline, potential appraisal and inspection contingencies, the amount of earnest money a buyer is willing to put down, and negotiations around home repairs, among other issues.
When Less Is More
Some sellers come into the process with priorities that are more important to them than the sale price. Make sure you know what those are at the start so that you can help weed out bidders who are not able to meet the sellers’ terms, says David Silverman, a sales associate with DeBianchi Real Estate in Fort Lauderdale, Fla. “Maybe the sellers require a long escrow period because their new home won’t be ready yet,” he says, “or maybe they need to close quickly because they’ve already purchased a new home and don’t want to pay mortgages on two properties.”
If you spend time upfront talking through all the factors that could come into play, your sellers will be in a better position to evaluate offers. Heidi Hines gives buyers a chance to put their best foot forward: She sends a memo indicating terms her clients will find more favorable, such as a quick closing timeline or fewer contingencies.
“That should be a heads-up that it’s a multiple-offer situation,” says Hines, CRS, GRI, a sales associate with Wilkinson ERA Real Estate in Charlotte, N.C. It can get buyers thinking about creative ways to gain sellers’ attention.
The amount of the offer is important, of course, and when buyers bid high, you want to make sure they’re qualified. Asking for a sizable earnest money deposit will help discern which buyers are serious, Silverman says. If bidders require financing, the reputation of their lender can be an important factor when weighing offers. If the lender is known for delays, you may want to counsel your seller on choosing another offer.
Many buyer’s agents in low-inventory markets, where bidding wars are common, advise their clients to waive contingencies and other items to make their offers more attractive. As a result, sellers may be better off considering lower bids when they come with fewer strings attached. Carrie Pierce-Johnson, a sales associate with Coldwell Banker Danforth in Seattle, says she suggested that a recent client, who had six offers, turn down the highest bidder, who didn’t waive the appraisal contingency. Such a contingency means that if the house appraises below the offering price, the buyer must make up the difference in cash—which could derail the sale. Pierce-Johnson’s seller avoided that risk by accepting a cash offer that was $10,000 less but bypassed the need for an appraisal.
When to Hold Your Opinion
When evaluating multiple bids, your clients most likely will ask for your feedback on which offer you think they should take. Your expertise can come in handy here, but there are occasions when it may be wiser to encourage your clients to reach a decision on their own.
Dot Aikman, a sales associate at Sky Realty in Austin, Texas, says it’s best to reserve your opinion when sellers are considering a personal letter they received from a buyer. It’s a common tactic buyers use to appeal to a seller’s emotion and win favor over other bidders. And while it can complicate your client’s choice, resist providing an answer in those situations, Aikman says. “I suggest to my clients to sleep on it. What does their heart tell them? You want them to be happy and not walk away from the deal feeling regret.” A seller Aikman recently represented chose an offer from a family over a higher cash bid from an investor. The family enclosed a letter saying their son planned to live there and improve the property. “That was appealing [to my client],” Aikman says.
You will want to offer your professional opinion to sellers when buyers offer incentives such as a rent-back agreement, which enables sellers to stay in their home after the sale if they need more time to move. Walk the seller through the terms of such a deal, explaining the benefits and potential risks. “If a family has small kids and they want to avoid temporary housing, a rent-back agreement could [be more valuable than a higher offer],” Pierce-Johnson says. Make sure the agreement stipulates who is responsible for what costs. For example, if an appliance breaks during the rent-back period, who pays for the repair? “I let sellers know that I can be helpful, but I’m not licensed to solve problems after the sale,” Pierce-Johnson says.
Sellers in multiple-offer situations have numerous considerations to sort through. Once you’ve done your job explaining the pros and cons of each offer and providing information clients need to make an informed decision, it’s important to support whatever choice they make. In the end, the best offer is the one they are most comfortable with.