For sellers, the idea of multiple offers on the home they’ve put on the market is a dream. But for buyers, it can be a big source of stress: How can you get your bid to stand out and be the one selected? This is especially challenging in today’s seller’s market, when bidding wars and stiff competition has become more common.
So do you want to know how to compete against multiple offers on your dream house? You’re in the right place.
Here, you’ll learn some strategies and secrets that can help give you a competitive edge, from boosting your earnest money to waiving contingencies.
Read on to find out:
• How to compete against multiple offers in a buyer’s and a seller’s market
• How to collaborate most effectively with a buyer’s agent
• How to increase your chances of competing against multiple offers on a house.
Multiple Offers in a Seller’s Market
A seller’s market means the demand for houses is greater than the supply for sale, causing home prices to increase and often giving sellers a serious advantage.
It can get pretty competitive for those who need to buy a house, and multiple offers on a house become the new norm.
Seller’s markets and the frequency of multiple offers can happen for a few reasons:
• More houses typically go up for sale during peak homebuying season in the summer, so seller’s markets are more common in the winter when inventory is low.
• Cities that see steady population growth and increased job opportunities often experience a higher demand for housing, leading to multiple interested buyers making offers on limited inventory.
• A decrease in interest rates could mean more people are able to qualify for mortgages, causing an uptick in homebuyers that might work to the seller’s advantage. More interested parties can mean more negotiation power.
As of the end of 2022, despite rising interest rates and waning home construction, there has nevertheless been a hot market, with demand outstripping supply. According to NAR (the National Association of Realtors®), one in four houses on the market receives enough bids to sell above asking price – a significant amount of competition.
Multiple Offers in a Buyer’s Market
In a buyer’s market, there’s a greater number of houses than buyers demanding them. In this case, homebuyers can be more selective about their terms, and sellers might have to compete with one another to be the most sought-after house on the block.
In a buyer’s market, house hunters typically have more negotiating power. The number of offers on the table is usually lower than in a seller’s market, and the winning bid is often lower than the listing price.
In other words, you are likely to be better positioned to get a good deal.
Are Buyers’ Agents Aware of Other Offers?
Unless house hunters are buying a house without an agent, there are certain cases where the buyer’s agent could be tipped off to other offers on the house. This insight could help you hone your offer to be the winning bid.
A lot of it depends on the strategy of the sellers’ agent and whether it’s designed to stir up a bidding war with obscurity or transparency. Either way, the sellers and their agent could choose to:
• Not disclose whether or not other buyers have made offers on the property.
• Disclose the fact that there are other offers, but give no further transparency about how many or how much they’re offering.
• Disclose the number of competing offers and their exact terms and/or amounts.
It’s up to the sellers and their agent to decide which strategy works best for their situation and, according to the National Association of Realtors® 2020 Code of Ethics & Standards of Practice, only with seller approval can an agent disclose the existence of other offers to potential buyers.
However, as you might guess, it can stir up more heated bidding if it is revealed that there are multiple offers. A prospective buyer might learn that intel and hike up their bid or offer other concessions, such as foregoing an inspection.
How Do Multiple Offers Affect a Home Appraisal?
What happens in the event of an all-out bidding war? Say a house comes on the market where few other properties are available, and it has all kinds of dream amenities: an outdoor pizza oven and slate patio, the perfect family room with a wall begging for a ginormous flat screen, a spa-style bathroom with soaking tub, and all kinds of energy-efficient bells and whistles.
Some buyers may be tempted to keep increasing their offer to one-up the competition. Unfortunately, this could lead to drastically overpaying for the house. And when it comes time for the mortgage lender to approve the loan, they may think the home isn’t worth all that money.
In these cases, buyers can add an appraisal contingency to their offer, asserting that the appraised value of the property must meet or exceed the price they agreed to pay for it or they can walk away from the deal without losing their deposit.
But what about in competitive seller’s markets when making mortgage contingencies could mean losing the deal? In those cases, buyers might have to put down extra money to bridge the gap between what their lender is willing to give and what they offered.
Think carefully in this situation about what you would do if the only way to nab your dream home would be to come up with more cash. For some people, it might be possible (perhaps by borrowing from family); for others, it would mean walking away or risk overextending oneself and blowing one’s budget.
Recommended: Home Affordability Calculator
How Can Buyers Beat Other Offers on a House?
Are you wondering, “But how can I compete against multiple offers on a house?” There are a few things homebuyers can do to improve their odds of winning when there are multiple offers on a house. Consider the following options:
A Sizable Earnest Money Deposit
Earnest money is a deposit made to the sellers that serves as the buyers’ good faith gesture to purchase the house, typically while they work on getting their full financing in order.
The amount of the earnest money deposit generally ranges between 1% and 3% of the purchase price, but in hot housing markets, it could go up to 5% to 10% of the home’s sale price.
By offering on the higher end of the spectrum, homebuyers can beat out contenders who offer less attractive earnest money deposits.
Best and Final Offer
Going into a multiple-offer situation and expecting negotiation can be tricky. It’s typically suggested that buyers go in right away with their strongest offer; one they can still live with if they lose to a contender — aka, they know they gave it their all.
In some cases, sellers deliberately list the home for less than comparable sales in the area in an attempt to stir up a bidding war. By going in with their highest offers, buyers could end up paying what the house is actually worth while still winning the deal.
Recommended: 7 Steps to Buying a Home
All-Cash Offer
By offering to pay cash upfront for the property, homebuyers effectively eliminate the need for third party (lender) involvement in the transaction. This can be appealing to sellers who are looking to streamline the sale and close ASAP.
However, this is obviously not possible for all homebuyers. It requires having quite a chunk of change on reserve to make this kind of offer. For some though (including those who just sold another property), it could be an option.
Waived Contingencies
Whether it’s offering the sellers extra time to move out or waiving the home inspection, potential homebuyers can gain wiggle room when they start to waive contingencies.
Contingencies are conditions that must be met in order to close on a house. If they’re not met, the buyers can back out of the deal without losing their earnest money deposit.
By waiving certain contingencies, buyers show that they’re willing to take on a level of risk to close the deal.
This can be appealing to some sellers. Of course, if you are the prospective buyer in a multiple-bidding situation, it means you are taking on risk.
What if, say, after you purchase the home, you discover that there’s $10,000 worth of HVAC work that needs to be done? An inspection would likely have revealed this, and you would have been able to negotiate with the sellers about this. But when you waive the inspection, you will be on the hook for this kind of upgrade.
Recommended: 6 First-time Home-Buying Mistakes to Avoid
Signs of Sincerity and Respect
Because many sellers have pride in and a deep affection for their home, buyers who show sincerity, respect, and sentiment may score extra points.
In some cases, it may be helpful for bidders to write a letter that details what they love about the home, which adds to the positive interactions with the sellers and their agent. It can make the sellers feel as if their home will be in good hands, with people who appreciate it rather than want to do a gut reno and strip away all the features they treasure.
This could lead to winning in a multiple-offer situation, but seek your real estate agent’s advice before penning such a letter. It could be a turn-off to some sellers.
An Offer of Extra Time to Move Out
In some cases, sellers might appreciate (or even require) a bit of a buffer between the closing date and when they formally move out of the house.
By offering them a few extra days post-closing without asking for compensation, flexible buyers can get ahead of contenders who might have stricter buyer possession policies.
Or you might offer to lease back the property for a month or more, if that would help the sellers get settled in their next residence. This kind of flexibility could tip the balance in your favor.
A Mortgage Pre-Approval Letter
Most offers are submitted with a lender-drafted letter that indicates the purchasers are pre-qualified for a loan.
But did you know there’s a difference between getting pre-qualified vs. pre-approved? A pre-approval letter can take it a step further by showing that the buyers are able to procure borrowed funds after deep financial, background, and credit history screening.
Pre-approval signifies to some sellers that the buyers can put their money where their mouth is, lessening the possibility of future financing falling through.
Recommended: Guide to Buying, Selling, and Updating Your Home
Kick-Starting the Homebuying Process
If you’re shopping for a home or plan to do so in the near future, it’s a wise move to get a jump on the process by exploring your mortgage options. For instance, how much of a loan do you qualify for and at what interest rate? How much would you have to put down?
As you move through this process, see what SoFi Mortgage Loans can offer. Our loans are convenient loans and have competitive rates. Plus, they can be available to qualifying first-time homebuyers with as little as 3% down. By knowing what your home loan funding looks like, you may be able to bid with greater confidence.
Get a leg up on buying a home, and find your rate in minutes with SoFi Mortgage Loans.
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