Dick offers us a great picture of what goes on in the minds of sellers in a competitive marketplace. We see similar multiple-offer scenarios play out daily here in a hot California marketplace, and I see them across the country.
As a lender a few things stood out to me --- for one, while FHA shouldn't be put down as it's a tremendous loan product and no more difficult to get approved than a 20% down conventional loan, in a scenario where a seller may be getting more than a home will appraise for, a large down payment conventional loan with an acceleration clause is usually going to be a better offer. More money down + more money available = comfort in a seller's eyes.
As for the 20% down conventional loan that came in 2nd, it brought to mind our Buyer's Best program - had these folks been pre-underwritten, they likely could have committed to a 2 week or faster closing time. Would it have won them the home in this situation? Maybe, maybe not, but it would have been a $10,000 question for the seller to answer.
As Dick so accurately portrays, buyers need to be coming to the table with their best shot in markets that are this hot. That includes having a reputable agent that will coach you in putting together an offer that gives you a chance, and a great lender that will not only do a pre-approval, but have you approved in underwriting before the offer even hits the desk. Assemble a great team, write up a great offer, and you just may be able to call a great house "home".
There have been so many excellent entries to Debbie Reynolds' contest sharing strategies for dealing with high demand/low inventory markets that it is unlikely that, rack my brain as I might, I could come up with something new, unusual and worth your time to read. But I did want to participate, so I have decided to approach it from the other side, by taking a look at how we handled a multiple offer situation on a recent listing.
The home was a mid-range 4 bedroom, 80's bi-level in excellent condition that hadn't been updated. We priced it at the top of the range for those homes in that part of town, and after just two days, we had 11 offers. We made a spreadsheet that compared them across the 7 categories that would be important to our sellers in deciding which to accept. Here's how that played out:
Price: We were all over the map on this. Two offers came in below asking, in spite of knowing they were competing, which moved them to the bottom of the pile. 5 were over asking, and all of them used an acceleration clause, one going up as high as $30k over asking. Those 5 all went to the top.
Terms: 2 of the 11 were cash, 6 were at least 20% down, 2 were FHA. Our sellers focused on the cash and larger down payments.
Lenders: All of the offers with loans had pre-approval letters. Most buyers were using reputable lenders, but 2 were from internet lenders, and one was from a local lender of questionable repute, with whom we had difficulties with several times over the years. Those went directly to the bottom of the pile.
Closing: The two cash offers had quick closings, which our sellers really wanted. All of the others were 30 to 60 days.
Appraisal: Both of the cash offers waived appraisal, and two of the offers with loans agreed to cover the difference between the purchase price and appraised value if the home didn't appraise at the purchase price, providing that it appraised at or over asking price.
Inspection: 2 of the offers waived the inspection contingency, and 3 others committed to asking for major items only.
Intangibles: We looked at a couple of other things that might have had some bearing but weren't contract items. The first was the reputation of the selling agent. We knew and had enjoyed working with many of them, knew of several more, and didn't have any knowledge at all of a couple of them - there were no real issues here. Several offers were accompanied by letters. Our sellers read them, but none rung a bell with them and they didn't really factor into the final decision. And almost all were clean, complete offers with no obvious problems.
So what did our sellers decide? In the end, it came down to 2 offers. The first was cash, $20K over asking, a one week close, and waived inspection and appraisal. The second was a 20% down loan from a great local lender, $30K over asking, a 30 day close, and acceptance of any appraisal difference.
In spite of the $10K purchase price difference, our sellers ultimately gave more weight to the cash, the quicker close, and the waived inspection. Being from out of town, and settling an estate for a relative, they wanted something quick and easy. Not having to deal with inspection items nor worry about a loan process, and being done in a week, gave them everything they wanted.
What did we learn? The sellers made the best choice based on their own unique motivations - factors the selling agents didn't know and even we didn't fully understand until it came down to decision time. More than half of the offers were complete, professional, and competitive. Any of those could have won the day. And we couldn't have guessed the outcome.
Mary & Dick Greenberg
New Paradigm Partners LLC
2601 S. Lemay Ave. #41
Fort Collins, CO 80525
Data Source: IRES MLS