How to Pick the Best Offer in a Bidding War
The Portland real estate market has been buzzing with activity in the spring of 2023. While we saw home sales slide quite a bit from May of 2022 to the end of 2022, we are experiencing a strong rebound in the spring of 2023 (though we expect it to slow down again in the summer and more so in the fall and winter). With the current real estate market conditions, sellers who price their homes at or below market value often find themselves receiving multiple offers. Understanding how to handle the multiple-offer scenario is important if you’re in this situation. To help you make informed decisions, we’ve compiled a list of frequently asked questions regarding handling multiple-offer situations as a seller in today’s Portland real estate market. Read on to gain valuable insights before committing to and accepting an offer on your home.
What does it mean to have multiple offers on a home?
An offer is not the same thing as a sale. For the purposes of your contract with your listing agent, your home can only sell once, but many parties may offer to buy it. It is common knowledge among real estate agents that getting an offer is only half the job. The other half is turning that offer into a final sale.
Each offer can be as unique as the person seeking to buy your home. Even if two or more parties offer your asking price, the details of the offer will typically differ.
Should I expect my Portland, Oregon home to go into a multiple offer situation?
There are many factors that will determine whether or not your home will enter into a multiple offer situation. But, the short answer is no, unless you are in a particularly desirable location or decide to start your listing price a little below market. Taking a sample of all the Portland market home sales in May of 2023, the average time to get an accepted offer was 31 days.
As I am sure you are aware, the market is still shifting in 2023. Mortgage rates are twice what they were just 8 months ago, and home prices have appreciated this spring. This is a double punch to many home buyers. Yet, the Portland real estate market seems resilient and we are still faced with multiple offers although not as often as it was over the last couple of years.
Homes very rarely go into a multiple offer situation unless they sell in the first few days or at least the first week of the listing going up, not three or four weeks later. Of course, some neighborhoods have more multiple offers than others, but there is not a neighborhood in Portland I’m aware of that averages over 50% multiple offer situations in a given calendar year. Your Portland listing agent needs to know your area, the season, the inventory, the correct pricing, and other relevant factors that impact the market value of homes in today’s market.
Many, if not most real estate agents in Portland will get you excited into thinking your home will go multiple (for sure!) and all of those same Portland real estate agents have an average time to sell their listings at 31 days on market. Beware of the hype. Now, on the other hand, my team has performed over 500 multiple offer situations, so I know when to expect them; it is just not all the time. Not every house, not every neighborhood, not every month of the year.
Besides price, what else goes into a home offer that you need to consider?
Good question. A home offer has many components. Here’s a short list:
- Price. Obviously, a key part of a real estate offer. In Portland right now, because of the prime selling season, many (but not all by a long stretch) offers come in at the asking price (the price you and your listing agent agreed to list the home for) or more. When calculating the offer price be sure to subtract any costs the buyer is asking the seller to play like a home warranty or the buyer’s closing costs.
- Financing. Only a few Portland home buyers offer cash, and those are typically investors, not regular home buying families or single persons. Of the 4052 Portland home sales in the last six months, only 829 were cash (roughly 20%) and again most of those Portland cash buyers are investors. Considering the news of a market shift, we are definitely seeing a pull back on investor properties. So, unless your home is a fixer-upper or a tear down, it is unlikely an investor will want it, they just don’t see enough margins to hedge against a market adjustment and still make a profit.
The loan may be FHA, Conventional, (Freddie Mac or Fannie Mae), VA, or another unconventional loan from a bank or direct mortgage lender. It is important your Porltand listing agent is familiar with all of the local and national banks and loan programs and which of those are more or less likely to cause problems in your upcoming transaction. Of course, the offer will also help you understand how strong of a financial position the buyer is in. If the buyer is putting down 20%, they are less like than a buyer putting down 3% or 5% from having a sale fail due to their inability to secure financinge. Even though home buyers make offers with pre-approval letters or pre-qualification letters (it does not matter) they may be barely qualified or overly qualified and the buyer’s side does not have to share that with you. Even though they are not sharing that information with you (typically) look at the downpayment amount for a good clue.
A good listing agent will also be aware of the changing financing landscape in this market. Lenders are tightening credit standards, which is disqualifying some marginal borrowers.
- Earnest money. In real estate transactions, earnest money is the deposit placed by the buyer to back up a purchase agreement. In the Portland metro area, our area it is typically 1% of the offered price. The earnest money deposit (EMD) It is held in a neutral escrow account until the deal closes. If the deal doesn’t close, and the buyer pulled out for an inappropriate reason, you get to keep that money. Read our earnest money fact or fiction article.
- Accessories. The buyers may have fallen in love with your dining room set and want it to be included in the sale of the home. As a listing agent with thousands of homes sold, I am particularly careful when reviewing offers to make sure we are crystal clear on what is included with the home and what is not.
- Inspection terms. The most common terms in a purchase contract let the buyer test and inspect the home for just about anything they want over a two-week period (ten business days), and then they can (and almost always do) request any repairs they deem necessary. The seller can agree to some, all, or none. The seller can also offer monetary compensation instead. If the buyer and seller don’t come to terms on how the repair request will be handled, then the buyer can walk and get their earnest money back (in most contracts).
- Closing date. Cash offers close more quickly, but the buyers will still need to give two to three weeks for the inspections and title transfers to go through. Lender-financed offers can take one to two months to close, so the closing date is usually determined by whether or not there is financing involved. The average time to close a sale in Portland right now is roughly 45 days. Of course, the seller can always request a different closing date in a counter-offer.
- Other provisions. It is not uncommon to have other provisions and contingencies to the contract. Very often you will come across buyers who have a home to sell and they want to make the purchase of your home contingent on the closing of their home. This can be a bit tricky because you are essentially betting on them selling and successfully closing on their home sale. Your listing agent will have to do some serious due diligence to make sure that is a sensible decision.
What if my home receives multiple offers?
No need to panic. That’s great news! A good listing agent will be able to negotiate between the potential buyers and help you select the best possible offer for you and your situation.
From the sellers’ standpoint, the best thing to do is to be crystal clear on your needs and priorities. If price is all that matters (rarely is that the case), you may select the highest-priced offer, knowing that it may fall through and you might start the process all over again.
Why would it fall through? There are a few reasons: Buyers offering above the listing price run the risk of having their financing revoked from the lender. Successful financing depends on the appraisal coming in at the sales price or above. If the home does not appraise for the amount the buyer wants to offer, the lender may say “no deal”. At that point the buyer can back out and get their earnest money back (or the seller can reduce the price to match, or the buyer and seller can agree on something in-between with the seller dropping the price and the buyer bringing in extra cash to close). On the other hand, if there is an offer at or near the listing price that is all cash, most sellers would be advised to accept that offer over a higher-priced offer. Cash deals are the most likely to succeed.
Can I counter offer the original offer?
Yes, in Oregon you can counter the offer. However, be sure your real estate agent has experience with this practice because it can be tricky. Making more than one counter offer at once can result in multiple legitimate contracts for the sale of your home!
What makes a good offer?
There are quite a few elements that make an offer stand out. It really depends on what you need as a seller. Savvy home sellers will place a higher value on offers that give a stronger possibility of closing, more than simply getting the the highest dollar amount for their home. If the deal falls through, the home is going to have to go back on the market and that can create a stigma of undesirability in the eyes of many agents and buyers. The home then sits on the market and the longer that happens, the worse the situation gets for getting sold again.
How can sellers protect themselves in a multiple offer situation?
The best thing you can do is have an knowledgeable and experienced real estate agent who will go over the offers with you. Sometimes a high offer may include a clause that the buyer will pay more than what the home appraises for (up to a certain amount). Some buyers will write in non-refundable earnest money after the inspection period. Some buyers will waive the appraisal contingency altogether. Experience counts in this situation, and an expert sellers agent will have been through it all before and be able to help guide you through all the options.
Licensed since 2003, my small team and I have closed on over 2,000 home sales with hundreds of those ending up in multiple offer situations. We know how to guide our clients through the process and pick the best offer for them. If you’re thinking of selling your home in the next twelve months, we’d love to stop by for a no-obligation appointment. We can forecast our your home value and help you prepare for market. Give us a call today at 503-714-1111 or chat with the bot on this site. We look forward to connecting with you!May 22, 2023