A Seller’s Guide to Multiple Offers
We’re currently in a “seller’s market” in Southern California, meaning there is more demand than there is supply. As a result, more sellers are now finding themselves in the position of being able to attract multiple offers. In California, sellers can issue multiple counter offers, negotiating with more than one buyer at a time. That allows the seller to
How does a seller go about attracting multiple offers and what should they do when they receive them?
The best way to generate multiple offers is to choose a competitive pricing strategy. That doesn’t necessarily mean pricing your home lower than all of your competitors, but you want to make sure that your home represents the best value based on its location, condition and price. Timing and introduction of the listing to the market are also critical. Having photos, a video and/or virtual tour, printed marketing materials and an aggressive online marketing strategy that will launch as soon as the home hits the Multiple Listing Service (MLS) is important so that the home receives the maximum exposure to buyers. That kind of market launch helps create a buzz. We typically use postcards to invite neighbors and area renters to our initial open houses and use social media and digital marketing to boost attendance as well. When interested buyers walk through a super busy open house, it creates a sense of urgency and an expectation that they may be competing with other buyers.
How does a home seller decide which offer to go with? Is it based on price alone, or are there other considerations?
While price is certainly an important consideration when reviewing multiple offers, it’s definitely not the only factor in determining which offer to choose. Sellers should look at the overall package. One aspect to consider is the relative financial strength of each offer: The amount of the good faith deposit and down payment; the buyer’s credit score and qualifying ratios; and whether the lender already has a full package and credit approval. Additionally, what is the buyer asking for? Are they seeking a credit toward closing costs or asking for items to be left behind that the seller had intended to take. Flexibility with regards to timing and occupancy can also be important for sellers who are relocating or purchasing a replacement property. And finally, as agents, we look at how an offer is written and packaged and what experience the buyers’ agent has. Having a savvy, experienced buyers’ agent on the other side of the transaction can be a plus if unexpected issues come up in the home inspection or if the buyers get a normal case of cold feet and need reassurance.
How can home sellers encourage competition among interested buyers?
The best way to encourage competition is to select a competitive pricing strategy and make sure they hire an agent with an aggressive marketing campaign that will create maximum exposure for their home. If we do receive offers prior to our initial open houses, we usually counsel that the sellers wait to respond until after the weekend. At that time, we can assess what we have in hand, check buyers’ qualifications, and then make a recommendation as to how the sellers could counter to maximize their selling price. We know that when we issue multiple counter offers, about 25 to 50 percent of buyers will probably not respond because they don’t want to “engage in a bidding war” so the number of interested buyers definitely impacts the counter offer strategy. There isn’t a “one size fits all” strategy with regards to countering multiple offers because it depends on how many offers you have, how close they are to each other, and what you think the maximum selling price may be.
Are there any pitfalls home sellers should watch out for in a multiple offer situation?
Yes, there are several. One is waiting too long to respond to people while you collect offers. If you string people along for a long time, some of them will lose interest and withdraw their offers. In California, the default deadline to respond to an offer is three days unless indicated otherwise on the offer form and it’s a good idea to respond within that time frame whenever possible.
The second potential pitfall is issuing counter offers asking people to submit their “highest and best” price or asking them to come up considerably from the listing price when you don’t have very many offers in hand. Typically, 25 to 50 percent of buyers who encounter a multiple counter offer will become disenchanted and choose not to compete. If you only have two offers and you lose the best one, you may wish you’d chosen a different counter offer strategy.
The third pitfall is going with a buyer who is basically making a high offer thinking that they will later negotiate a lower price based on a lower appraisal amount or physical inspection findings. There is no way to completely guard against that, but it does help to work with a buyer who appears to be buying well within their ratios, who has adequate financial reserves, and who is working with an experienced Realtor.