In heated Real Estate Markets where inventory is restricted and demand in on the higher side, we observe Multiple Offer Situations. There might be a scenario where multiple parties liked the property the day you saw, and more than one of them would like to put an offer for purchase. This is a typical Multiple Offer situation where more than one offers are competing.
The first thing I would like to point out to you about the Resale Home Market and its most significant advantage is that it has an ‘Unlimited Inventory.’ Every week new homes will keep coming on the market and keep cycling, so as a buyer, you should never get emotional and overpay for a property. Giving more than the value at purchase will impact your bottom line when you sell the asset on a later date, and also reduce your immunity for any market downturns.
The essential step in a home purchase is to determine the Fair Market Value (FMV) of the property. FMV is arrived at by comparing similar specification homes that have sold in 1/2 mile to 1-mile radius of the subject in the last three months. The comparable properties chosen should be of similar age as the subject, similar property type, and in the same neighborhood. Once you have your comparables, we need to make plus and minus adjustments. For any feature which is additional in the subject and missing in the comparables, we would make a plus adjustment. For any elements which are present in the comparable and missing in the subject, you will make a minus adjustment. Doing this process iteratively, you will come up with the fair market value of the property in question.
Being in multiple offer situation, you ought to use your due diligence based on the state of the property and come up a ceiling price which you would be willing to pay for the property with consideration of fair market value, and that becomes your best offer. As I mentioned earlier, we need to be objective in this whole process. You give your best shot and don’t worry if you don’t get it, there is always another property waiting for you.
Now let’s discuss some other aspects which will help you create a good offer as a buyer to better your chances in a multiple offer situation.
1) Deposit Amount – In your offer to purchase, always try to put a reasonable deposit amount, higher than the normal. Deposit amount shows the good faith of the buyer in a transaction; it certainly shows your earnestness in the purchase, and the probability of your winning will increase. You can be assured that the seller doesn’t receive the amount, and it just goes and safely sits in the brokerage’s trust account or lawyer’s trust account. Since, at closing, you are anyway contributing that amount, putting that amount 1-2 months earlier should not lose you much interest. Still, it will help a great deal in your offer standing out amongst other competing offers.
2) Finance Condition in the Offer – It’s paramount importance to get your pre-approval done in advance with a financial institution when the market is heated. An offer which is firm on finance certainly takes an edge from other offers which are with contingencies on finance. The pre-approval in your pocket will go a long way to give you the much-needed confidence to make it firm.
3) Closing Date – Your realtor or broker would determine from the listing side their preferred closing date, and as a buyer to improve your chances, you should try to accommodate that in your closing timelines.
4) Inspection – Based on the state and condition of the property, determine if you can reduce the inspection condition from say five business days to 2 days or, better still, 1 day. This will indicate to the seller that you are sincere about the purchase. In hot markets, if you get the confidence, you can also contemplate removing the condition altogether using your discretion.
I hope this was helpful. If you have any questions feel free to reach out to our team, and we will be happy to answer.