Multiple offers are a seller’s dream. They often lead to a bidding war and bidding wars often lead to a higher sales price. What seller wouldn’t want that?
My last blog discussed why home buyers should shoot for a short negotiation. Now it’s time to help home sellers properly navigate multiple offers and avoid the all-too-common mistake of overplaying their hand.
Multiple offers happen by luck or by orchestration. When determining an asking price, there are many strategies a seller can use. The two most common are:
1. Pricing above fair market value to give the seller some negotiation room.
2. Pricing below the market to hopefully attract multiple offers.
3. Sometimes sellers get lucky and price their home above fair market value and still get multiple offers!
Be careful: Pricing your home low to attract multiple offers can backfire. If demand isn’t what you expected, you may end up leaving money on the table.
If you’re lucky enough to receive multiple offers, you’ll be in a great negotiating position, but that doesn’t necessarily mean you hold all the cards. Depending on the demand for your home, you’ll need to tread carefully and not scare off a great buyer.
Rules of the Game
You and your agent are under no obligation to tell the other buyers anything about the other offers. In fact, you don’t even have to provide proof that there is another offer. It’s all based on the honor system.
If you’re thinking, Aha! I should just pretend to have another offer – I highly suggest you don’t. Just the idea of a bidding war can scare off other good buyers and you may end up with your phantom buyer. Plus, I’d question the integrity of your agent if they were down with this strategy.
7 Pro Tips for Handling Multiple Offers
- Narrow it down to the top 3 or 4 offers – If you do receive multiple offers, chances are it will be 2 or 3, not 5-10. If you do get 5-10, it’s usually best to narrow it down by vetting each offer and responding to the top 3 or 4 initially. If none of the preferred offers come to an agreement (which is unlikely), then go back to the others.
- Use a bad offer to push up a good offer – AKA, bluffing. Having multiple offers gives you the ability to bluff. As I mentioned, you’re not required to disclose anything about the other offer. If you get one good offer and one not so good offer, let the good offer know there’s another offer and push the good offer to accept your terms. I’m not suggesting you lie or mislead, just don’t disclose any details. Be careful not to push too much though or you’ll get stuck with the bad offer.
- Don’t fall for the Bully Offer – A bully offer is when the buyer knows there are (or will be) multiple offers so he/she throws out a big number and then tries to renegotiate everything during the escrow. How do you know the difference between a bully offer vs. an excited real buyer? That’s for your agent to figure out.
- Don’t focus too much on price – The most important variable is not the highest price, it’s choosing the buyer most likely to actually complete the purchase. In California, buyers can back out for any reason during the first 17 days. You want to do your best to choose the buyer that will follow through. I’ve seen sellers choose the highest offer without considering the buyer’s desire to close (see #3) only to lose the escrow weeks later and realize the other buyers they rejected bought other homes.
- Have your termite inspection done prior to listing your house – It’s customary for the seller to complete any termite work, but it’s not required. If you know how much the termite work will be ahead of time, you can add it to your counter offer. I’ve used this strategy many times and it works beautifully. Buyers are much more likely to accept paying for the termite work if that’s what it will take to get the house.
- Sell “As Is” – Every home is technically sold as is, but buyers and sellers will usually negotiate repairs after the inspection. You can avoid that by making it clear in your multiple counter offer that the seller will not negotiate any repairs after the inspection. This is much easier to pull off if buyers are competing for your house.
- Best and Final Offer – This can be a very effective strategy but it needs to be used in the right circumstances. Make sure you have a very hot property that buyers are willing to make a blind bid or this can easily backfire. I’ve seen sellers use this strategy in the wrong situation and go from having 3 offers to 0 and ultimately accept a lower price than they likely would have received if they just countered an actual number.
Trust Your Gut
Choosing the right buyer often comes down to gut instinct. Lean on your agent’s experience. A good agent will be able to guide you to the best buyer who is most likely to close. This involves not only evaluating the integrity of the offer, but the integrity of the buyer, the lender, and the buyer’s agent. All of these factors help determine which buyer is most likely to provide the outcome you desire.