Despite signs of a slowdown in the U.S. housing market, sellers are still seeing buyers flock to their listings. According to data released by real estate agency Redfin, in April this year, 60.7% of offers across the United States faced competition. In a hot market, sellers should be prepared to examine multiple offers at the same time, and know how to choose the best among them.
The two biggest factors that really influence seller decisions are price and terms.
Price is important, but the highest offer is not always the best option.
Without a doubt, we want to get the best price for our customers, but we also want the deal to go smoothly.
When faced with multiple offers, in addition to the price itself, the seller should also consider other aspects of the offer, such as the unexpected terms included and the buyer's payment method.
Investigate the source of funds for prospective buyers
Buyers using cash to pay can quadruple their odds of winning an offer, according to a Redfin report released in March. If they choose a cash buyer, sellers know they don't have to worry about getting their mortgage application approved. Additionally, cash transactions can be completed faster, possibly in as little as 14 days, while transactions involving mortgages typically take 30 to 60 days to complete.
All-cash offers have grown in recent months as Americans benefit from a strong stock market and convenient telecommuting policies, giving homeowners in high-priced markets an opportunity to cash in and move to more affordable areas . Cash home purchases accounted for 34.2% of all single-family home sales in the U.S. in the first quarter of 2022, the highest level since the first quarter of 2015, according to real estate data firm ATTOM.
Offers for cash payments may be lower than offers with financing. Sellers can still choose buyers who take out a loan to buy a home with confidence. Some well-qualified lenders can compete with all-cash offers in terms of closing speed. High-quality local lending institutions can complete the transaction within 15 to 21 days. In addition to price, sellers should also consider offering offers that waive unexpected terms, thereby reducing the risk of a failed deal. Waiving the home inspection clause can help win the seller's favor. Such surprise clauses give buyers the right to back out of the deal or renegotiate if they discover unexpected problems with the condition of the home.
A common tactic used by buyers is to make a very high offer at first and then renegotiate with the seller about the condition of the property. To give buyers the confidence to make the 'highest, best' offer, Rosten often allows a week before the offer deadline to allow buyers to self-inspect the home before submitting a final price. According to a Redfin report published in March , in 2021, pre-inspecting homes can increase the success rate of a competitive offer by 25%.
Another group of buyers may choose to waive the valuation surprise clause, provided they have sufficient funds to cover the difference between the lender’s valuation and the actual purchase price. In many cases, people will make offers well above the listed price. We recommend that the seller best confirm the buyer's source of funds. Likewise, if the buyer agrees that some or all of the deposit or security deposit will not be refunded, this can show the seller that they are in good faith in closing the deal. This fee usually arrives soon after the purchase agreement is signed. If the buyer directly raises this point when making an offer, it will carry a lot of weight.
Effective pricing strategies to improve profits
Competition to buy a home is likely to continue to weaken as interest rates rise and some potential buyers leave the market. Precisely because the buyer base has shrunk slightly, pricing strategy is all the more important to help sellers attract the best offers. In some hot markets, real estate agents will advise sellers to lower the listing price slightly, making it easier to trigger buyer bids. Several clients have successfully put this strategy into practice. Lowering the price a little has two advantages: first, it helps attract multiple offers; second, it makes people feel like they're getting a bargain. We clearly know that doing so can win over buyers emotionally. When buyers are emotionally attached to a listing, they don't want to miss it. As a result, they may offer higher prices than originally thought.
Clarify the deadline for receipt of quotations
Sellers with quality listings should inform buyers that they won’t be evaluating offers until after a certain date, so they have plenty of time to attract more offers and don’t have to rush to respond to any potential buyer right away .
In 2020, Rosten agents sold a Los Angeles home that was featured on the classic sitcom “The Golden Girls.” She set aside two weeks after listing for potential buyers to submit offers and allow early home inspections. After arranging nearly 140 inspections in two weeks, they ended up receiving offers from 20 prospective buyers. After screening, she asked several of the highest bidders to give their "highest, best" offer within 24 hours. Meanwhile, Rosten made a counter-offer to a family. The couple's original contract terms were enticing, but not as expensive as the highest bidder. Surprisingly, they ended up with a substantial price increase, buying the property for $4 million, well above the original asking price of $2.99 million.
In this example, Rosten's counter-offering strategy worked. Other realtors, however, cautioned that the effectiveness of this strategy was case-by-case, and advised sellers not to ask each other for a specific amount.
Faced with this situation, some buyers will simply choose to give up. As an alternative, sometimes the seller may decide to accept the first offer, as this prospective buyer may be most interested in the listing, greatly increasing the chances of a successful closing. Sellers should also understand the strategies and techniques that buyers use to improve their chances of winning an offer. In the Denver area, some buyers are putting pressure on sellers to respond within a few hours by making a very high offer on their favorite listing. In this case, it is crucial for the seller to work with an experienced broker who can jointly explore the possibility of similar high offers in the future. When holding a high offer that is difficult to refuse, no one can guarantee that a better offer can be received. At this time, the seller is required to carefully weigh the risks and rewards.
Remain objective and avoid emotional
While some sellers may want to understand each buyer's motives and backstory, most brokers advise not to add emotion to the decision-making process. If you're getting 18 offers in a row, it's not practical to know each buyer individually, so you just need to have the objective facts.
The National Association of Realtors also cautioned realtors to avoid showing such letters to sellers, as they could lead to biased decisions and raise housing equity concerns. Today, most real estate agents recommend that sellers use a spreadsheet to list the terms and benefits of each offer for side-by-side comparisons. The seller is recommended to select a fallback offer. That way, if their preferred offer falls through, they don't have to relist the house, lest it sit on the market for too long. Sometimes, the situation changes suddenly, and it is not impossible for the back-up quotation plan to finally sign a deal. Even when the market is on a buying spree, sellers can't be sure they'll receive multiple offers, so they should take each offer seriously and be grateful.
It's good to have multiple offers from prospective buyers, but remember, you just have to make the best choice out of them.
