How to Pick the Best Offer in a Bidding War
Everyone’s talking about the Portland real estate market. If you’re a seller and priced at or below market value, there is a good chance of receiving multiple offers on your home in this market. Before you commit and accept an offer on your home, read our frequently-asked questions below about handling multiple-offer situations.
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 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. Taking a sample of all the Portland market home sales in June 2017, the average time to get an accepted offer was 31 days. 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, not three or four weeks later. Certainly, some neighborhoods have more multiple offers than others, but there is not a neighborhood in Portland 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, etc. Many, if not most Portland real estate agents 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 the hype. Now, on the other hand, my team performed 81 multiple offer situations last year, 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 goes into a home offer?
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 summer 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. Unless your home is a fixer or a tear down, it is unlikely an investor will want it. 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. 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 finance. 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.
- Earnest money. In real estate transactions, earnest money is the deposit placed by the buyer to back up a purchase agreement. In our area it is typically 1% of the offered price. 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 blog post on earnest money here.
- Accessories. The buyers may have fallen in love with your dining room set and want it to be included with the sale of the home.
- Inspection terms. The most common terms let the buyer test the home for just about anything they want over a two week period (ten business days) and then they can (and almost always do) ask for repairs. 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 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 financing. 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.
What if my home receives multiple offers?
No need to panic. 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.
The best thing to do from the sellers’ standpoint is to be solid in your needs and priorities. Is price is all that matters, 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? Buyers offering any amount above the listing price run the risk of having their financing revoked from the lender. Usually it depends on the appraisal. 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 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?
Yes, in Oregon. 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?
It really depends on what you need as a seller. Smart sellers will place importance on the likelihood of the deal closing, over getting the highest dollar amount for their home. The reason is that if the deal falls through, the home is going to spend a longer amount of time on the market and the longer it spends on the market the harder it is to get a great price for the home.
How can sellers protect themselves in a multiple offer situation?
Have an excellent real estate agent who will go over the offers with you. Sometimes a high offer may include a clause that the buyer will actually 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.
The Portland real estate market is moving quickly. Buyers and sellers alike can benefit now more than ever from the services of a highly qualified agent. Do your research so that your real estate transaction is smooth and easy, no matter how many offers you receive — you’ll be glad you did!July 7, 2017