For every piece of property on the real estate market, there could be anywhere from zero to infinite buyers who are hoping to call it home. OK, “infinite” is a stretch, but multiple-offer scenarios can be common when the race is on to purchase a new home.
Which house hunter comes out with keys in hand, however, depends on many circumstances.
Whether it’s a hot seller’s market or a slowly simmering buyer’s market, knowing how to handle a multiple-offer situation can help homebuyers beat out the competition.
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 their state 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.
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.
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.
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.
How Do Multiple Offers Affect a Home Appraisal?
After all that energy is expended trying to beat out other buyers, what happens in the event of an all-out bidding war? 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.
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 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.
How Can Buyers Beat Other 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, though certain tactics may vary based on the local real estate market or specific circumstances.
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 2% 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 a negotiation can be tricky. It’s typically suggested that buyers go in 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.
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.
Whether it’s offering the sellers extra time to move out, waiving the home inspection, or ensuring that their current residence is sold before making an offer, 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.
Signs of Sincerity and Respect
Because many sellers have nostalgia for their home, buyers who show sincerity, respect, and sentiment may score extra points.
By writing a letter that lays out what they love about the home and engaging in positive interactions with the sellers and their agent, buyers can put themselves in a more favorable light that could lead to winning in a multiple-offer situation.
An Offer of Extra Time to Move
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.
A Mortgage Pre-Approval Letter
Most offers are submitted with a lender-drafted letter that indicates the purchasers are pre-qualified for a loan.
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.
Kick-Starting the Homebuying Process
One way for house hunters to get a leg up in the homebuying process is by ensuring that their home loans are secured in advance.
With competitive rates, exclusive discounts, and help when you need it, SoFi mortgage loans make the first part of competing against multiple offers a whole lot easier.
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