Over the last week, two of my clients have encountered multiple offer situations for properties under $400,000, one in Loveland and one in Broomfield. This is probably the 7th spring season where I've helped clients navigate these stressful situations. There are a lot of things a buyer can do to make their offer stronger, but there are pros and cons to each approach:
- An offer that is contingent upon selling another home is unlikely to be accepted in a multiple offer situation, since the sellers are assuming more risk. If the buyer can't sell their home, the seller has lost valuable time on the market. The further down the timeline a buyer is, the more contingencies that have passed, the better the buyer's position. There are also some creative ways to help the seller feel better about their risk.
- Waiving the Inspection Objection is a common strategy buyers employ for sweetening the deal. This basically tells the seller that the buyer will accept the home as-is. It's important for the buyer to retain their right to terminate the contract should a big issue be revealed by the inspection, but waiving the Objection gives the seller assurance that the buyer won't renegotiate the sales price through expensive repairs or monetary concessions. This may be a useful strategy if the house is relatively new or the buyer is handy and can manage small repairs themselves after closing. There are also compromises to this contingency that may strike a happy medium for both buyer and seller.
- An escalation clause may be used to automatically top another offer. For instance, a buyer may submit a starting sales price and agree to pay $1000 over all other competing offers. However, if more than one offer includes this provision, the sales price could go up indefinitely. Sometimes it's preferred for the buyer to just state the number over asking price that they feel the house is worth.
- Waiving the Appraisal Objection is almost always necessary in a competitive situation. A sales price over asking doesn't mean much if the buyer plans to ask the seller to reduce the price in the even of a low appraisal. When waiving the objection, the buyer needs to be able to cover any amount between the contract price and the appraised value that the loan won't cover, meaning the buyer has to have enough cash for a down payment, the terms they want, and the appraisal "gap." It's important that your agent has a very good idea of what the appraised value might be so a buyer isn't paying an amount over asking that will not eventually be made up in appreciation and equity.
All of these clauses must be worded carefully so there are not unintended consequences for the buyer. For instance, a colleague of mine wrote an Appraisal Objection clause that committed the buyer to pay for the appraisal gap out-of-pocket, but neglected to account for an appraisal that was lower than even the listing price. The buyer had to bring much more money than they were planning to closing which was tough for them to afford. That's why it's important to hire a Buyer's Agent that has dealt with multiple offer situations - and it doesn't hurt to have a bit of healthy paranoia to prevent worst-case scenarios.
I would love to help you with your real estate journey.
