Before I list the variables to manipulate to your advantage one thing is certain. You need a selling agent with a “killer instinct” on the marketplace who really understands the week in and out market values of the homes. Probably only about 25% of the selling agents out there are that attuned to the marketplace. Some of the signs of a homes’ value include how well the home shows, the time of the year it's listed, how many agent cards are on hand, how long has it been on the market, was the property priced purposefully below the market value thereby increasing the likelihood and number of competing offers, and calling other agents with homes under contract in that neighborhood and asking them to divulge how many contracts they received for their listing and what it escalated to. All of this can give a skilled selling agent with good instincts an idea of how many contracts he will or will not be competing with. Not many agents go the extra mile because of the extra work involved. But it’s easier to do it right the first couple of times competing against other offers rather than writing 4, 5, 7 or more contracts that I've that occur with buyers in those markets.
1. On the contract you are putting 10-20% down in most cases. Now if you decide with your lender to change your financing terms later that is fine. For example you may later determine a 5% down payment would be a better way to construct the loan after securing the ratified contract. What matters is the money is at the table when you close and making a good impression with your contract. And you want to make a good impression with our contract by how much we are putting down. In most regional sales contracts a buyer has the freedom to modify their financing as they wish so long as they can close on time.
2. Put as much of your down payment down into your earnest money deposit when you write the offer—very aggressive but it makes a REAL good impression. The earnest money is part of your down payment anyway so there is not much difference in putting it down a month early. The seller knows you’re for real and have money based on your earnest money deposit more than your stated down payment on the contract (at least good listing agents know that since you can modify your financing later). If you break the contract you lose your earnest money deposit so a huge earnest money deposit says to the seller you’re for real and there’s no way you are going to lose your earnest money deposit by breaking the contract.
3. Set the closing date to the date the seller finds most convenient.
4. Include your approval letter up front from your lender with copy of earnest money deposit check and make sure you do not make it contingent upon obtaining financing.
5. No contingencies if there are going to be competing offers. That's why it's a good idea to pay attention to the house when you view it to see if there seeing any cracks in the foundation, etc. In many cases your selling agent will state having a home inspection would not hurt your case, but in many instances the agent knows there will be X number of other contracts most of which have struck their home inspection. It's the market in which you have to compete.
6. Escalation clause—figure out where others are going to bid and then bid over it. In the blank where you list your increment of escalation (ex. “$500 over nearest competing offer not to exceed a ceiling of _____”), make a statement with your increment! Do not go $500 or $1000 over the nearest competing offer. Think about it. If you’re talking about $550,000 house, 1000 extra dollars really doesn’t differentiate your contract except ($1000 divided by $550,000). Increment 3-5,000 over the nearest offer. Almost all agents just increment in pathetic amounts. Many buyers can win with everything equal because of earnest money deposit, strong increments and predicting to where the others will escalate.
7. When you escalate and figure other buyers might escalate to $570,000, then escalate to 572,755. DO NOT JUST STOP AT EVEN CUT-OFF MARKS LIKE MOST AGENTS DO. Always escalate $1700-2700 above where you think the cut-off mark is going to be. You want to predict where your enemy is going to finish and position yourself ahead of them. Think eBay bidding.
8. If you know the true market value is going to be up there to where you escalate and have no fears of it NOT appraising, strike the appraisal clause in the contract that says if the property doesn’t appraise for the sales price, and therefore your lender will not lend you the entire amount, you can void the contract or renegotiate a new sales price. By striking this clause you put seller at ease if the property does not appraise at the escalated amount. Also instead of 10% down you could change the loan to 5% down and use the other 5% to make up the difference between sales price and appraisal. Or your skilled selling agent may tell you that the appraisal will not be an issue based on other comps that are available or will be available by the time the appraisal occurs. Having the option of a 100% loan is a great weapon to have in your arsenal because it allows you to take hypothetically the 5% you were going to put down and apply it to the difference between the appraisal and sales price. Striking the appraisal clause is very common in multiple offer scenarios and often very uncomfortable for the would-be buyer.
9. Offer a free post-occupancy agreements to seller in case they need another 2 weeks in the property while they settle on another their new home, etc. Usually an owner would pay the new owner (you) rent for those weeks based on cost of new loan to you. But it is another variable to play in your favor.
10. Close at a settlement company convenient to seller or that the listing agent wants.
11. Agent to agent relations. Believe it or not it comes down to this in many instances of where things are so equal that the selling agent’s previous experience with the listing agent comes into play.
These are the first strategies that come to mind, but the point is multiple offers is nothing to be intimidated by—just play to win!
Jay Seville has worked in both the most intense sellers' market and buyers' markets in the Utah DC metro real estate area. Well known for his brutally honest observations on the market with his real estate blog, he is known as the authority for Arlington Virginia Condos and often lists the most overpriced condos on the orange line corridor for which buyers should beware. While loving real estate, his priority is his new family and this newly adopted step-children and baby boy birthed at home with a mid-wife's assistance.
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