Strategies For Multiple Offer Situations (Part 1 of 3)
It’s no surprise that there’s more demand than available inventory in our Denver area real estate market! In fact, although we’re seeing home inventory increase year-over-year, the actual numbers of homes for sale is still well within the “seller’s market” territory. Not until we reach a months of inventory (MOI) level of at least 4-6 months will we find ourselves in a balanced market where buyers have significantly more power. So, until then, don’t be surprised to find yourself in a multiple offer situation when you come across the perfect place for your next Colorado home!
So what do I mean when I say “multiple offer situation?” This means that a home for sale has multiple buyers submitting offers for the same property. This usually happens within the first weekend of a home hitting the market. Even if there’s just one other buyer competing for the same home as you, be ready for a fight!
Because of our market, I want to provide a few tips and strategies to help you be more competitive. In this first of three articles, we’ll take a look at four things to consider for your competitive offer:
1. Price: Without this most important element, the other strategies really don’t matter. You don’t necessarily have to have the highest price of all offers, but you want to be near the highest ones so that you can stay in the running. I think the magic number to stand out at is normally about $15K over list in competitive multiple offer situations (depending on price point as well), although I’ve seen it go much higher in certain situations ($40K….). However, it’ll be situationally dependent. In many cases, $5k over list has worked well. It all depends on where the home is priced initially and how the market responds.
2. Letter or video to seller from you: Did you know you can write a letter or send any other means of communication to the sellers through your agent? You’ll want to tell your story, how much you love the home, how perfect it is for your kids, how easy of a buyer you’ll be, etc. Remember that part of the strategy in winning a multiple offer situation is showing or convincing the seller how confident they should feel in selecting you as the buyer. Telling your story helps do that. I’ll caveat this by saying that there’s a strong possibility the seller(s) may not see it (if the listing agent doesn’t present it), but you want to assume they will see it and be prepared.
3. Inspection: There are a number of things you can do with regards to the inspection contingency in the contract. You can have the inspection scheduled ASAP – within a few days of going under contract if possible (assuming your inspector can accommodate). Scheduling the inspection objection within a week or a few days also makes you look highly motivated. Another good strategy is to say that you’ll reserve the right to do inspections and object, but that you won’t ask the seller to fix anything (no inspection resolution put in contract). If you wanted to go to the extreme, you could even omit an inspection objection (or just include the inspection termination date) in the contract and truly purchase “as-is.” This, of course, is the most risky plan of action. It’ll be important to balance protecting yourself as a buyer while also looking most appealing to the seller.
4. Earnest Money (EM): A higher EM deposit shows that you are ready to put more on the line and that you are very serious about buying the property. You can go as high as you feel comfortable – some people put their entire down payment as earnest money. Another option is to write the EM check directly to the sellers, although not recommended (it’s normally written to the title company or real estate company holding the earnest money in an escrow account). Your earnest money is still your money and will be credited to you at closing, but the deposit at the beginning of the contract helps hold you, the buyer, accountable for keeping the contract on track with dates, deadlines, obligations, etc.
If you have questions about these first four elements of a competitive offer strategy, let me know! I’d be happy to discuss in more detail. Read on for more tips and tricks when writing competitive offers in the Denver area real estate market! Now onto even more strategies to make your offer competitive!