Last week I was out with clients looking at a house that had been on the market a total of 456 days. Granted it started out overpriced, and thorough numerous price reductions came to a price that the was more market friendly. Never did we think that when we submitted an offer on the home that we would receive the call that another offer had come in, and we were therefore facing a multiple offer situation.
The first question is – is the listing agent bluffing about the presence of another offer? My response to this is while that can not be absolutely ruled out, I trust the integrity of the agent on the other side, and considered the claim of another offer valid. A point regarding the disclosure of offers by the listing agent. According to the National Association Code Of ethics:
REALTORS, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, divulge the existence of offers on the property.”
In other words a listing agent is not obligated to divulge the presence of multiple offers without the consent of their selling clients. So being informed of multiple offers is not a given, but a welcome bit of information as negotiations get underway.
The next question is – what do we do next? An offer made in the absence of a competing offer is most likely going to more aggressive across the board in terms of price, terms, and conditions, so with guidance from the client as to their level of interest in the home we rethought our game strategy.
As with any offer, comparable sales for the property must be researched and discussed. Even in a multiple offer situation offering a higher price just to secure the property is not what I consider smart strategy. So the take away for price is to offer a market based price that is based upon recent sales data and area selling price to list price ratios.
A bit of a twist on the offering price can be proposed with what is known as A Price Escalation Addendum to The Agreement Of Sale. A price escalation clause allows the buyer to offer a price for fixed home, and under certain conditions have the price escalate up to a ceiling price limit.
For example – it is determined that a market based price for a given home is $100,000. The buyer is is an multiple offer situation. Direction has been given by the listing agent for all interested parties to come forth with their best and final offer for the property. The natural reaction is to come up with a fixed price say $96,000 for the property, and hope that is enough to win the price war.
Using a strategy of price escalation an offer can be submitted at a lower price – say $95,000 – and the buyer can still get the property. It works likes this, since you do not know what the competing offer is you do not have to totally abandon your initial price strategy. You do however need to establish what your maximum ceiling price for the property is, and by what dollar amount do you wish to beat the competing offer by, say $1,000. The beauty of this strategy is that if the competing offer is lower than your offer, you get the property at the fixed contract price of $95,000, and the escalation clause does not kick in.
The contract price of the property is only escalated if the competing offer exceeds your fixed contract price – which in this example it does – $96,000 versus $95,000. You have offered to beat the competing offer by $1,000, so in this scenario a price of $97,000 gets you the property. The Price Escalation Addendum also requires proof of the existence of the competing offer/s should the price get escalated.
I have used this strategy on several occasions in the recent past, and it has performed well – my clients got the property they desired without a run up in price.
Other ways to sweeten an offer in a competing offer situation:
– Make a strong deposit. Sellers are looking for security in a offer, a larger deposit can help
– Be flexible on the Settlement Date – if you can agree to a seller’s time frame it could win you the deal. It is not always about the money.
– Keep your inspection time frame a short a possible. I do not suggest you waive inspections, but do them as quickly as possible
– Write a note to the seller discussing what you love the home and why you think you deserve to be the next owners of the home – be sincere but not sappy
Be prepared and have a multiple offer price strategy in place as you look for the home of your dreams.
Wallingford Real Estate – Wallingford, PA 19086
