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Multiple Offers: the Lottery Win for Home Sellers

Blog by Patricia Houlihan - Personal Real Estate Corporation | August 31st, 2020

Lately we have been receiving multiple offers on a number of properties in all price points. This happens when there are more buyers for a property than there are comparable properties to buy. The best thing about multiple offers is that they pretty much guarantee that sellers receive MORE than what the market value of their home should be AND fewer subjects: The Lottery Win. 

In multiple offers, regardless of whether they come in higher (usual) or lower than the asking price, most buyers will pay more than what they think the property is worth...the competition puts them in the position where they feel they must do that. As a result, I have never seen a multiple offer situation where the sellers did not receive an excellent price for their home. 

In addition to getting an amazing price, multiple offers also often lead to sellers receiving subject free offers. This is also a huge benefit-so much so that most knowledgeable sellers will take a much lower offer if there are no subjects than they would with subjects. Accepting an offer with subjects means the house is not actually sold AND the buyer could still come back and ask for a lower price- especially if there is a subject to inspection. 

On the Price: let's push it up even higher

In multiple offers, you almost always get higher than what the market value of the property would otherwise be. I have never seen a multiple offer situation where that has not happened. People tend to "overpay" when they have competition for a home. For this reason, many realtors prefer to take the offers as they are received and not try to push the price up in a multiple offer situation-the theory being the sellers are already getting more than would otherwise be expected. I do not agree with this approach. I have found that ESPECIALLY in multiple offer situations, we can often have buyers agreeing to go higher than their first offer in order to "win" the home. For this reason, I think negotiation is still very important in multiple offer situations. It requires greater care but is usually worth doing. When we have the golden multiple offer opportunity, we can really use it to our sellers' advantage.

On the Subjects: they may be more important than the price!

While price is very important for sellers, in the multiple offer situation, the subjects (the terms to be met before the buyer is 100% committed to the sale) are almost more important: We only have one chance to get the best offer and focusing on price can lead to sellers accepting a bad offer. The subjects can give the buyers an "out" which is not good. When all of the offers have the same terms, such as all subject free, then the seller can usually take the highest offer. This is the best multiple offer situation- the sellers can simply choose the highest price when all are subject free. HOWEVER if some of the offers have subjects, then it is important NOT to be swayed by price alone; one needs to consider the subjects VERY carefully. Recently we have had 3 homes sold with multiple offers and in NONE of them was the highest price offer was the best for the sellers. However in all 3 cases, the sellers walked away with a very good price AND no risk of buyers backing out or trying to get the price lower.

An Example:

To illustrate the importance of the subjects in multiple offers, in a recent situation we had:

-the highest offer was a bit higher than all of the others (2% higher) BUT with a subject to inspection. We asked the realtor to have the buyer remove the inspection subject but they would not.

-the second highest offer had a subject to financing BUT the buyers were pre-approved by the bank (banks usually will not finally improve without doing an appraisal of the home). The buyers had done an inspection on the house before offering and were fine with the results.

-the third highest offer had many subjects. The buyer would not increase their price nor would they remove their subjects.

-the fourth potential offer-the buyer did an inspection and got the results before the offer date. The buyer THEN BACKED OUT and did not offer. This gave us a heads up that on this home accepting a subject to inspection offer would likely be even more risky than usual.

Most realtors agree that subject to inspection is a VERY risky subject if you have multiple offers. In the situation above, we knew the subject to inspection would be a huge risk-not justified by a 2% higher price.  

In preparing my sellers when I think we may get multiple offers, I tell them before we ever receive an offer that we don't want to accept an offer subject to inspection unless it is our only option or we are pretty certain that the house is in impeccable condition. Inspection is a subject which allows buyers to easily back out and it is VERY hard (almost impossible) to get the other buyers back in a bidding war if the first offer falls through. I don't like to see any subjects when we have multiple offers but when it does happen, the 2 subjects I really don't like are subject to inspection and of course subject to sale. Both of these subjects are far too risky for my sellers. 

In my opinion it is almost never worth the risk to take a subject to inspection offer if there are other options. The price difference would have to be VERY significant AND we would need to be quite certain the inspection would go well before I would advise a seller to take the subject to inspection offer. In selling one home I owned personally, I had an offer which was almost 10% higher than the others BUT with a subject to inspection. I chose the second, much lower offer which did not have a subject to inspection. Some think if you lose the first offer you can "go back" to the buyers who lost in the bidding war. While this is possible, in a surprising number of situations, the buyers will have lost their enthusiasm after a few days of consideration...and then the seller will have lost the best price.

Multiple offers are great for sellers but they need to be handled properly to maximize the gains and remove the risks. If you would like more information about the current "multiple offer market" or anything else real estate related, please contact me.