How to Compete in a Multiple Offer Situation

In Minneapolis/St. Paul we are currently very much in a seller's market, meaning that there are far more buyers than sellers. As a result, homes are selling quickly with offers coming from multiple buyers.

As a buyer, this can be an overwhelming prospect. Winning in a multiple-offer situation is attainable and sometimes does not require the highest offer but rather a better understanding of the seller coupled with a strategic approach. Here are some of the tactics that can be utilized to ensure your offer is the winning one:


Price
Price is one of the most important components of your offer. In a seller’s market, it is not uncommon for the final selling price of a home to be significantly higher than the initial list price.

A Larger Earnest Money Deposit
Earnest Money is a good faith deposit with the amount agreed to in your Purchase Agreement and transferred to the seller once your offer is accepted. 1% to 2% of the offer price of the home is standard for your Earnest Money amount, and the funds go towards your down payment or closing costs at close. A seller may view a higher percentage/larger dollar amount of Earnest Fund money as a sign of a more qualified or serious buyer.

Flexible Closing Date or Rent Back Agreement
Flexible on when you can close? Is the seller? This is one area where you can shine by allowing the seller to determine the close date. Another option is to close on the property and allow the seller to rent back the property. This agreement is called a Rent Back Agreement, where the seller and the buyer agree to close on a home, but the seller will continue to rent the home from the buyer for a determined period. 

Closing Costs
Closing costs on a real estate transaction range from 1% to 3%. Requesting a seller cover a percentage, or all, of a buyer’s closing costs will require less cash to close on the part of the buyer, but in a competitive seller’s market is an almost impossible ask.

Shorten or Waive Contingencies
Inspection periods can be daunting for a seller. It gives the buyer the option to back out for any reason and puts the seller back at square one. Waiving inspections is not always the best idea but shortening the inspection period can give the seller more confidence when choosing your offer. 

Escalation Clause
Not all agents are willing to negotiate Escalation Clauses and not all sellers are willing to work with one, so this is a piece that will need to be discussed before submitting your offer. What an Escalation Clause states is that the buyer is willing to pay (xx) amount of dollars over the highest offer up until (xx) amount of dollars. 

Appraisal Clause
Your offer was accepted. Inspections all cleared. Everything is great until the bank comes back with a low appraisal. Now what? Having a predetermined plan as part of your Purchase Agreement with the terms that will take place if there is a low appraisal, an agreement you will cover up to (xx) amount of difference between the purchase price and the appraised price, on the property can make the difference between your offer and another buyer’s offer.  

The most important thing as a buyer is to lead with your best offer. While you may have an opportunity to increase your offer price if you are one of the top potential buyers, it is not a guarantee. However, it is also important for a buyer to know their level of comfort with regards to monthly payments. When is it time to continue negotiations and when is it time to walk away?