Some offers are better than others. Some people think it is all about who makes the highest offer but there are other things to take into consideration.
Here is the hierarchy of offers:
- Cash offer.
- Conventional loan with large down payment.
- Conventional loan with smaller down payment.
- FHA/VA loans. (Because the appraiser for these loan types does a minor assessment of the house. If the condition does not meet minimum standards set out for each loan type, the Seller HAS to do the repairs in order for the Buyer to get their loan.)
- Any loan with down payment assistance where there are two loans that have to go through two different underwriting guidelines.
Then there is the offer amount:
- Offer over list price.
- Offer list price.
- Offer less than list price.
Then there is the home inspection. Three choices there:
- No home inspection at all.
- Buyer does home inspection but won’t ask for repairs. Will either accept the house or walk away.
- Buyer wants to negotiate repairs with Seller.
Then there is the appriasal:
- Buyer will cover any possible gap between sale price and appraised value in cash.
- Buyer won’t cover any possible gap between sale price and appraised value in cash.
Then there is the Buyer’s lender:
- Buyer will use a local lender that every realtor knows does a good job.
- Buyer will use a non-local mortgage company.
- Buyer will use a local lender that every realtor knows preapproves any buyer with a pulse.
- Buyer will use a bank that begins with the letter C that everybody knows will be difficult to work with and that it is unlikely to close on time.
Then there is the closing date and when the buyer can move in the house:
- Buyer’s realtor found out when Sellers want to close and put that date on the offer.
- Buyer’s realtor doesn’t know to ask this and that it can really help make their client’s offer more attractive.
Then there are contingencies:
- Buyer has no contingencies.
- Buyer needs to close their old house first in order to buy the new one.
- Buyer needs to sell their old house first in order to buy the new one, meaning it currently may not be on the market and definitely doesn’t have a contract on it.
Then there are closing costs:
- Buyer will pay their own closing costs.
- Buyer needs Seller to pay some of their closing costs.
- Buyer needs Seller to pay all of their closing costs.
What are your numbers? If you are a 1 in all of these, go out and make your offer. You will probably get the house. If you are a low number in any of these, best of luck. If you are the bottom of any or all of these, then you are wasting your time. Sorry, but you are. You are not going to get a house making an offer less than list price with an FHA loan, wanting to negotiate repairs with the Seller and needing to close or sell your old house.
Now that you know all the things a listing realtor is thinking about when they process all the offers, do what you can to make your offer the best it can possibly be. If you are doing a conventional loan and think you are going up against other cash offers, maybe waive the home inspection and offer to let the seller stay in the house briefly after the closing? If you have to close on your old house to buy, make your offer the highest one they get (realize too that moving twice costs money and it might be cheaper to pay the most for a house verses paying to move twice, live somewhere temporarily and then look for another house which will have gone up in value while you wait.)
When I moved in 2012, I was up against 4 other offers. Two of them were cash. That was unheard of back then but common today. I knew I couldn’t compete with cash so I went a little over the list price, waived the home inspection and offered to let the Sellers rent back from me until they found their new house. This was appealing to them since they had not found their new house yet.
This one always drives me crazy. There are a lot of bad things to do during multiple offers when you are the buyer’s realtor, but trying to rush the listing realtor is the worst.
What I mean here is where a realtor sends you over an offer and puts something like a 2 hour deadline for acceptance. I get it. Their goal in this is to make you hurry up and accept their offer before another offer comes in but I have NEVER seen it work in their interest. It usually backfires.
There are three reasons why:
- Do you know what happens once that short time frame for acceptance passes? The offer has technically expired. I don’t know about other realtors but the last thing I want is for the listing realtor to think the offer I sent is dead because the time has past. In this market, I usually do the opposite. I know listing realtors are wanting to get several offers and it is common for a seller to not even review all the offers until 2-3 days after the listing went live. I like to give them plenty of time. Why? Because I know I am not going to get them hurry up. They are going to do whatever they want and I want my client’s offer to be valid whenever it is presented. I also want to come across like we will be easy to work with.
- It makes the seller not like you. This is an even bigger one. Nobody likes pushy people. We don’t like it when somebody keeps pushing their grocery cart too close to us in the check out line. We don’t like tailgaters when driving. And in the hottest seller’s market in all of history, we sure don’t like it when buyers try to exert some pressure on us.
- It makes you question their commitment. I recently had this happen to me. I got a really good offer on a listing the first day on the market. I told the realtor, who was also the buyer, that we were planning on reviewing offers on the following Monday. She pointed out that she had given us a two hour window. I suggested she extend that until Monday. She fought back and said she didn’t know if she was still interested in the house if she couldn’t buy it that day. That tells me two things about her. She was either bluffing or was serious. Both are bad signs to me. If she was bluffing, it tells me she is going to try to manipulate us through the entire sale process. If she was not bluffing, she probably wasn’t totally in love with the house and there was a greater risk of her backing out of the sale before it closed. I told this to the sellers and they agreed that the only way we were gonna sell the house to her was if her offer was the only one we got. Fortunately we got 3 other offers and I was happy to tell her she didn’t get the house…….and I did it before her precious deadline.
I’ve seen a few sellers lately make some bad decisions.
I get it. Selling your home is something you only do so often and I don’t expect them to understand the market and all the obstacles between sticking the sign in the yard and the closing. All they know is that the market is hot and selling your house is easy.
What they don’t know is that keeping it sold can sometimes be a lot of work.
I recently had a friend decide to list with some less experienced agent who was going to reduce the commission. I was going to reduce my commission to ZERO since this person was a friend and they had some circumstances that required them to move, guess I should have told them that sooner. I had been giving advice and working towards getting this done for close to a year. To this seller, all they were thinking about was saving money. Well, you only realize that savings when you close the sale. The house sold and is back on the market. Usually when a house comes back on the market, it doesn’t get the same attention from buyers. Most buyers in the market have already seen it and either said no to the house or made an offer that obviously wasn’t the best one or they would have gotten it the first time. This is where experience is worth every penny, even though I wasn’t planning on getting any pennies from this sale.
I am currently working hard to keep a deal together for a house where the buyer went to do the final walk through before the closing and found the ice maker had been leaking and has caused $12k in damage to the house. I know if my listing goes back on the market, we will never again catch such a fantastically qualified buyer who was the highest bidder, so I better put on my thinking cap and get this done.
These are just a couple of current examples of where experience can make or break a sale. The goal is to get to the closing. I am thinking about the entire process, not just the beginning. Not just the next step.
As I was making my second cup of coffee and thinking about writing this post, it reminded me of the early days of GPS. You’d enter the destination and take off. I think that is how most sellers view this process…….”I’ve got a realtor and they just stuck a sign in the yard. It’s all downhill from here!” If nothing goes wrong, then that is very true. But how often have you had your GPS take a crazy route or not know about construction, wrecks or other annoying delays? It’s the same with real estate. A lot of inexperienced agents don’t know what to lookout for along the way or don’t know how to negotiate. Sometimes you have to take an alternate route. Sometimes you need to change lanes along the way. A good realtor is more like the Waze app……not only are we watching out for delays, we are looking for speed traps and doing it all in real time as we get you to the final destination, which is the closing.
I have always said a house is gonna sell for what it is worth. I said it when it was a Buyer’s Market. I’m saying it now. Overpricing your house is the surest way to make the process take longer and likely sell for less than it could have. Price it right and buyer’s all rush to see it when it is a new listing, regardless of the market conditions. They are afraid of losing the house if they like it. You want that sense of urgency.
Back in a Buyer’s Market, the goal was to drop the listing on the market at the right price and hope to get multiple offers. It is the same today, only with a few tweaks.
Today the list price is more like when an auctioneer begins the auction with a number low enough that they know they will get that first person to raise their hand. Then the price keeps going up until nobody else raises their hand. The list price is more like a suggestion these days. You still do not want to start off with too high of a list price. I often suggest a list price to sellers. They will tell me how strong the market is and want it to be higher. Then when a house sells for more than the list price, they feel like they left money on the table and undersold it. That is not the case. If you had several buyer’s bidding up your house, that means you got every penny out of it.
What I like to do is examine the most recent comparable sales in the neighborhood. I figure out what the house is worth compared to what other buyer’s have recently paid for houses around my listing. Then I put it on for that price since we know 100% that number will work. The worst thing that could happen is you sell it for full price. Then I drop it on the market late on a Friday. That way everybody sees the listing and starts scheduling showings for the weekend. It is good when buyers see other buyers coming and going. It shows them it is a hot listing and they better decide fast. Once I get one offer, I let all other realtors who have shown it know. You don’t tell them before they show it. You wait until after they have shown it so they don’t assume they won’t get it and cancel the showing. Even if the offer sucks and is not one I can suggest my seller accept, just having one enables me to leverage any other offers up as high as any buyer can go.
I recently put on a listing for $360k. We got 6 offers on it. Five had escalation clauses and we ended up selling it for $384k……and that must be the market value since that is what a ready, willing and able buyer agreed to pay. My seller is a good friend who was very happy with the results. If I had put the house on the market for $384k, do you know what would have happened? Since there was only one buyer willing to pay that much, I probably would have only gotten one offer. It would have been full price or less. I wouldn’t have been able to leverage the terms towards the interest of my sellers without the presence of more than one offer any more than an auctioneer could drive up the price with only one bidder in the room.
A buddy of mine is a realtor in Oklahoma. He posted something on facebook about the market there. Somebody made a comment. He replied to their comment basically saying that a lot of sellers think it is easy to sell their house right now without a realtor, but they need realtors now more than ever to sort through the chaos of getting so many offers.
It got me thinking.
Back when the market was bad and houses were taking forever to sell, I would sometimes have a seller joke that I am making too much money when their house sold immediately.
The public thinks being a realtor is easy money. When it’s a sellers market like it is now, they think they can do the same tasks we do and save the money. But here is the thing, you are really paying a realtor for what they know and to use their knowledge. You are not paying them to just perform tasks. That is why most for sale by owner houses take longer to sell, usually don’t get as many offers, and tend to fall apart more often than those listed by a good realtor……and I will not even get into the quality of pictures that for sale by owner people take, lol.
Even in this market when selling a house is so easy, you need somebody who can tell you which offers are most likely to get to the closing table. There are many variables within an offer besides just the price. Most sellers just think “This buyer is willing to pay the most so let’s go with that one!“