Despite serious economic warning signals, our local real estate market is maintaining a torrid pace for the fifth consecutive year. I know of two properties that recently received 34 and 32 offers, respectively. This past week, one of my listings engendered 16 bids; another attracted 15.

In multiple offer situations, most buyers recognize that the asking price is simply the starting point. As a higher than list price is generally given in competition, a seller must take other factors into consideration before ratifying a contract. Understanding what constitutes a strong offer is important to buyers, before writing, and sellers, before accepting, a purchase contract.

Can the buyer perform?

The crucial question, above all others, is whether the buyer will actually perform, i.e., close the escrow on the written terms and conditions. This is always a best guess, based upon experience. As a seller, you must rely on your Realtor’s professionalism, knowledge and longevity in the business. Hopefully, you thought about this before hiring your agent.

Not long ago, a seller received an offer with a cover note from a licensee guaranteeing that his was an excellent buyer who would close escrow in 30 days or less. The listing agent asked if the buyer’s cash was “liquid and available now.” He was assured it was.

The seller’s agent took the additional step of calling the mortgage broker who had provided the pre-approval letter. He then discovered that the buyer’s funds would  not be available in time for the close of escrow. This was a case where the buyer could not carry out the contract as originally written.

In the end, the principals were able to work it out. Nevertheless, if that call to the lender had not been made, the close would have been delayed, resulting in an unhappy seller.

Although the highest price sounds best, an offer that does not close is worthless. Even all cash sales are not necessarily the “slam-dunk” they appear to be. The best listing agents protect their sellers by insisting on substantiation of all the funds necessary to close the escrow before the seller accepts. 

Terms and other issues

It is not always easy to dovetail the needs of the buyer and seller; each has to coordinate moving elsewhere. In competition, allowing the seller flexibility in relinquishing possession of the property is counted as a plus for the buyer. This could involve a combination of a longer close of escrow and seller rent back, some, or all, of which may be at no cost to the seller.

Another concern is how the buyer will handle inspections. In a bidding war, some buyers waive all contingencies. This means they are not asking for any time to approve inspections or financing. It is a risky approach and should be done, if at all, only by buyers who have the cash to close without a loan and who have had the property thoroughly inspected before writing the contract. 

Many sellers and their agents will not allow pre-sale inspections. Even if they do, at $500 or more a pop, it can get quite expensive to do inspections and then have an offer rejected. 

Related to inspections is the question of whether the buyer is asking for work to be done by the seller, or is buying “As Is.” Naturally, sellers prefer As Is; buyers, however, must be careful to know a property’s problems before agreeing to this arrangement. 

A lender’s pre-approval letter, stating that the buyer has been checked and approved is sine qua non when there are multiple bids. In addition, the type of loan and amount of down payment are significant items. 

Although zero down loans and a variety of programs are available, a conventional loan with at least 20% down and a short contingency (14 to 21 days) is viewed as stronger in competition. This makes it difficult for buyers who have good incomes, but do not have hordes of cash.

The initial deposit could also play a role. For example, on a home listed for $525,000, there might be two offers of $600,000, with 20% down. If the deposit on one was $5000, and the other was $25,000, the larger one could be a positive. The seller and his agent would likely see the higher deposit as greater motivation. At the least, it would show the buyer has the money and is willing to put it into escrow now.

Everything else being equal, a buyer who plans to live in the home will generally have the advantage over one who is buying it as an investment.

As a buyer, who your agent is, and how he presents your offer, may be crucial. Professionals prefer to work with other professionals. Choosing a local Realtor who is known and respected in the real estate community can often make a difference.

Final thoughts

In multiple offer scenarios, there are many times when a seller will have difficulty choosing between similar offers. Most sellers need guidance from a competent real estate professional to ferret out the most advantageous one.

Buyers will have a greater chance of success by looking at the process from a Realtor’s perspective. In the popular neighborhoods and price ranges, until the market changes, only highly qualified buyers who are willing to structure extremely attractive offers will prevail.

Related Articles: Multiple Offers, Part 1; and Part 2; Confirm Competing Offers