Points to Keep in Mind in a Multiple Bid Situation

Today's post comes from Ferris Peter Levin Margolis team member Nadia Nejaime


We've all seen news stories locally and nationally about it being a "Seller's Market" in many areas of the country.  In the DC Metro area, the market has been strongly favoring Sellers for some time in many neighborhoods, due to the fact that we have experienced a multi-year period of far-below-average levels of inventory, coupled with heightened demand due to the influx of new residents into the region, and fueled by continued low interest rates and a sustained period of economic growth.  So, when demand far outpaces supply, it is not surprising that a properly-priced home in a desirable location can receive multiple offers.

And we've definitely all heard the horror stories about that friend of a friend who made 11 offers on 11 different homes until theirs was finally the winning bid, and to win they had to pay a huge amount above asking and give up everything in the contract.  It truly can be brutal out there for a buyer!  

There is no set formula on what it will take to win a multiple bidding situation, since every scenario has different players with different needs, constraints, etc.  Also, the number of competitors for a home can vastly impact how it will turn out.  The outcome when there are only two offers on a home can look very different than when there are eight offers.  

But here are some hopefully helpful points to keep in mind when you find yourself in a multiple bid situations for your dream house.  

  1. You won't get the house if you don't make an offer.  Just like the lottery, you won't win if you don't buy a ticket.  Some buyers are scared off at the thought of a competition and back away, assuming they won't get it or that they cannot be competitive.  Sometimes, that can be an accurate assessment, but sometimes it is the fear of not winning that prevents even trying.  I am not making light of the emotional upheaval that losing a bid on a house can cause, but what if you found out after the house went to settlement that it sold for a price you could have comfortably and willingly paid?  Not every competition results in the house selling unreasonably above the list price.  Sometimes it is worth it to try.  That being said, only try if you really want the house. 'Cuz you just might get it.
  2. Know your limits.  It is very easy to rationalize spending just a little bit more, and then even a little more than that.  "Oh, it's just another $10,000 and that's only another $50/month."  Do that rationalization a few times and then you might find yourself at a price that is way beyond your comfort level.   Competitive bidding for a home can get crazy, but YOU are in control of YOU and what you offer.  Decide what your limit is, what the house is worth to you and what it will mean to your overall financial situation, and then be willing to let the house go if the bidding should go beyond your personal limit.  That can be a really tough thing to do, because sometimes it might sell for only a little higher than you would have been willing to go.  Also, there is no set formula for how high the price will escalate (if at all) when there are multiple offers, so you can only be guided by what you can and are willing to do.
  3. But stretch yourself if you can.  Remember when I said to know your limits?  Well, that is a very true statement, but the other consideration is that the house that got away from you for just a few thousand dollars more than your self imposed limit is now the new comparable for the neighborhood.  So the next similar house that comes for sale there will be starting at the price where that one sold.  And what if that one gets multiple offers also?  So it may become harder to buy in that location as the prices creep up.  It is important to know if there is flexibility in your limit, and to keep in mind other factors and trade offs that may make it worth it to you to push a little bit to get the home.  Perhaps time is running out to get a home in the school district you want in time for the kids to start at the beginning of the school year. Or, what if an alternative home is a farther commute, albeit with a lower price?  Is the extra cost for the home worth saving that time in the car each day?   Buying a home should add to your life in a positive way, so it makes sense that you would look at all the ways the home purchase might make an impact.
  4. It is not always about the money.  I've been in situations where my clients were NOT the highest bidder, but won the home because they presented a strong, very clean (i.e., few contingencies) offer in contrast to a higher priced offer with more hurdles to settlement.  I've also been in the reverse position, where my clients were offering more than the competition, but lost out because of the protections they wanted or needed to have in their offer were more burdensome than another offer.   It is very easy to focus entirely on the price, thinking that is the only metric that matters.  And certainly it a most important factor.  But if a buyer promises an over-the-top price, but includes every protection for themselves in the event the price is not supported by the appraisal or their lender can't deliver the loan, or the buyer wants a right to exit if they don't like what they find in an inspection, then that price may be illusory.  A seller will want to look at which buyer can actually deliver on the promises in their offer, looking at the strength of their finances and planned financing, their willingness to share or manage some of the risk, etc. 
  5. Yes, to win, you might have to waive some contingencies, but there are still some ways to protect your interests.  There is definitely the sense in some particularly brutal competitions that the buyer has to give up EVERYTHING, including their first born, in order for their offer to prevail in a multiple offer situation.  It can certainly feel like that sometimes.  But, there are definitely strategies to consider that allow a buyer to make a strong offer, without absorbing limitless risk.  That's where an experienced, creative agent can make a difference.  (Hint:  me).  For example, I would not typically recommend someone buy any home, no matter how good it might look, without a thorough home inspection (unless, for example, it is an investor who plans to tear it down to build something new).  But you can usually get that thorough inspection without making it a CONTINGENCY of the contract.  When it appears a home is likely to get multiple offers, a buyer might elect to pay for a pre-inspection (still the same full-scope inspection you would have post contract signing) so they can make an offer that is not contingent on getting a home inspection.  There are also ways to manage the risks related to financing so you may not need to ask for a financing contingency, or you can put bounds around the risks of a low appraisal.   
  6. Get creative.  Sometimes the seller needs something more valuable than a higher price or a contingent-free contract.  Perhaps they need a rent back, delayed settlement, home of choice clause, etc.  If the buyer can be flexible and work with the seller to help solve a seller's pressing need, that may be the winning difference.  Your agent should ask probing questions of the listing agent to find out as much as possible about what a seller might really need or want in an offer.  The listing agent's goal is to attract the best offer possible for her client, so she may be share some valuable information if your agent asks the right questions.
  7. Put your best foot forward.  In a multiple offer situation, a buyer cannot count on a second chance to improve their offer.  I have had situations where a buyer is able to put in a stronger offer, but wanted to see how the seller responded to their initial offer before improving their offer to what they could and would do to purchase the home.  Sometimes, buyers expect that even in a multiple offer situation, the seller would make a counter offer.  I warn my clients that this is not always likely or probable.  Why would a seller with several offers to choose from, focus on an offer that is not as strong as others that have been presented?  And practically speaking, a seller cannot make a counter offer to all the buyers.  So, a buyer may have to show their best offer up front - there won't be a second chance to make a good first impression.

There are many other strategies, tactics, nuances, etc. that can be used to present the strongest offer a buyer can and is willing to make, within the bounds of tolerable risk.  Having a team of experienced professionals on your side (realtor, lender, inspectors, etc.) will help you to identify and manage the risks, and craft an informed, intelligent, and - as necessary - aggressive offer to secure a great home.