At the end of May 2012, a couple who are looking in San Leandro, CA to buy a home for their kids, saw this new listing in the area of Assumption Parish, asking price: $390,000 A day after we saw it, the listing Realtor informed us that there were 5 offers coming in, that the sellers will wait until the end of the weekend to see how many more offers would come, they set up a deadline and we all waited.
A total 17 offers were received on this property! my client wrote an all cash offer for $415,000 which was $25,000 above the asking price and was not even on the top 3 offers. I believe it sold for above $440,000, that is $50,000 above asking price, you might think this is an easy choice for the sellers, and in some ways, it is true, out of all those offers, one is bound to give the sellers everything they want.
What happens when the offers go way above asking price? It is important to remember that the banks loan money on real estate based on two things: a) the agreed sales price, or B) the appraised value, whichever is lower. In the example above, it is possible that the recent comparable sold sales in the area only justify the asking price of $390,000 after all, that is the only way to set the asking price.
What happens then when 3 different home buyers make offers of $440,000 and above? About the only way to get this price for the seller, is if the buyers bring offers that are all cash, non-contingent, because any type of financing that requires an appraisal will not go. An alternative will be for the buyers to agree to pay the difference between the appraisal value and the agreed price in cash.
Bank appraisers need to show at least 3 houses that have sold recently, similar to the one being appraised to justify the value of the property. Those houses must be similar in size and condition, and be located in the same neighborhood. An appraiser will have the exact same information that a Realtor would have, so anticipating what a house would appraise based on that data is relatively easy.
Sometimes, home buyers will present an offer much higher than the asking price, and have a condition on their offer, that the house must appraise for the agreed sales price, even with an all cash offer. If the house does not appraise, they can re-negotiate, or back out of the deal.
In a bidding war, the highest offer is not necessarily the best offer for the home seller, unless is an all cash offer with verifiable proof of funds, a quick close of escrow of 7 to 10 days or less and a hefty cash deposit.
The process of elimination of 17 offers would probably go like this: First, out go the offers that have any conditions at all: i.e. home inspections, contingency of selling a home or refinancing another property, Second: all offers that are at asking price or below get tossed out. Third: VA & FHA offers are eliminated, those loans take longer than the average, and sellers must pay for some of the buyers fees. Finally, of the remaining offers, the all cash take priority.
Sellers are always looking to sell: A) at the highest possible price, b) with the least amount of inconvenience and c) in the quickest amount of time possible. If you are a home buyer and find yourself competing with other buyers for the same house, remembering some of these points ought to help you present your best offer.
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