Managing multiple offers on a home can be tricky both as a buyer and as a seller. While sellers love a potential bidding war, it can also be overwhelming to compare offers and decide which one is best. When buyers know that a home has multiple offers, they might make hasty and risky decisions in an effort to beat the competition.
Both parties need to approach the situation carefully to achieve a good deal. Here’s everything you need to know about handling multiple offers without regret:
How to Choose From Multiple Offers as a Seller
Set a deadline
Setting a deadline creates a sense of urgency for buyers. When they only have a limited amount of time to deliberate, they’ll make their best offer faster so they don’t miss the opportunity.
A deadline also helps you keep the process moving as the seller. During a bidding war, it can be tempting to hold out for better and better offers, but you also don’t want to delay closing. By setting a deadline, you commit to a strict timeline for reviewing and accepting offers, which will keep you on track toward a speedy close.
Consider contingencies
Price isn’t the only consideration when evaluating offers. While you may want to select the highest bid, a lower offer may contain contingencies that make the deal better overall.
For example, an offer that waives the home inspection can be very competitive. Without this contingency, the buyer can’t renegotiate or back out of the deal based on the results of an inspection. This speeds up the closing process and reduces the risk of you needing to pay for repairs or lower the sale price based on the condition of the property.
Prioritize cash offers
Cash offers are almost always the best offers. Even if a cash buyer offers a lower price than a buyer with financing, it may be in your best interest to choose the cash offer.
Securing financing is one of the lengthiest steps in the closing process. When the buyer doesn’t need to apply for a mortgage, you can close in record time. Cash buyers typically don’t need appraisals, too, which further speeds up the process. There’s also a far lower risk of the deal falling through when the buyer is paying with cash.
Assess risk
As you and your agent evaluate your offers, read between the lines to assess the risk of each one. You can often get an idea of a buyer’s financial situation and overall commitment to the deal based on the contents of their offer.
For example, a buyer that isn’t pre-approved for a mortgage may not be serious about the home sale. If they made their offer on a whim, there’s a greater chance they’ll back out or fail to secure financing. Buyers that make a lot of requests or demands in their offer may be difficult to negotiate with and may continue to nitpick throughout the process.
Think about the closing date
If you have a deadline for closing, you may need to select the offer that gives you the best chances of closing on time. For instance, one buyer might currently be renting their home and can move at any time, so they offer a flexible closing date. Another buyer may include a sale-of-current-home contingency, which means they will not close on your home until they sell their property. Because the renter will most likely be able to close faster, their offer is much more appealing.
Use the offers to negotiate
If you’re up for negotiating, you could leverage your offers to try to get the best possible deal. Your agent can inform the buyers’ agents of the other bids, which will encourage the buyers to increase their offer prices, remove contingencies, or otherwise adjust their offers to get ahead of the competition.
This strategy can be risky, though, as the buyers could walk away instead of engaging in the bidding war. You and your agent should carefully determine whether you think the buyers will renegotiate their offers to win.
How to Win a Bidding War As a Buyer
Increase your down payment
If you have more cash on hand, consider increasing your down payment to give your offer a more competitive edge. A large down payment communicates to the seller that you’re serious about the deal and that you’re in good financial standing.
Additionally, a bigger down payment can cover an appraisal gap, which reduces the risk of the sale falling through if the home appraises for more than the sale price. Your lender won’t give you more money than the home is worth, so the down payment will make up the difference. Appraisal gaps are especially common when bidding wars drive up the price of a property.
Use an escalation clause
An escalation clause is an agreement to meet or exceed the price of another bid up to a certain amount. For instance, you could agree to exceed higher offers by $5,000 up to a cap of $450,000. As long as the other offers don’t exceed $450,000, your escalation clause guarantees that your offer will be the highest.
Only include an escalation clause if you’re truly able to pay up to the cap. Alternatively, if you’re searching in a highly competitive market, you might consider making your highest and best offer first instead of relying on an escalation clause.
Waive contingencies
Waiving certain contingencies can be a great way to strengthen your offer if you can’t increase the price. However, understand that without contingencies, you’ll lose your earnest money deposit if you need to walk away from the sale.
You could waive the appraisal contingency if you’re confident that the house will appraise for the sale price. Your lender will still require an appraisal, but waiving the contingency allows the seller to keep your earnest money if the appraisal is low and you exit the deal. Another option is to waive the financing contingency, which means you assume the risk of losing your earnest money if your financing falls through.
Offer a flexible closing date
Flexibility on closing is very important for some sellers. Maybe the seller has a fast-approaching deadline to close, or maybe they need extra time to find their next home. If you’re able to offer a flexible closing date, your bid could beat the competition. You could even offer a rent-back agreement, which allows the seller to continue living in the home for a certain amount of time after closing.
Navigating Multiple Offers With Ease
There can be a lot of pressure on both buyers and sellers when managing multiple offers. As a seller, you want to choose the offer with the best overall price and terms. As a buyer, you want to beat the competition without overextending yourself.
Whether you’re in the market as a buyer or a seller, working with a trusted real estate agent is essential. Your agent will help you craft the strongest possible offer or evaluate your offers to choose the best option. If you think through your strategy carefully and collaborate with an experienced agent, you’ll be able to manage multiple offers with ease.
