Q: When you finally settle on the house you want to buy and you find there are multiple offers, how should you negotiate to make your offer the better one?
A: To those who are not currently active in the market, your question might seem a little bizarre. Multiple offers? In this buyer's market? Absolutely! The best-priced homes in the best condition in the most desirable neighborhoods are receiving multiple offers, even in today's market where so many sellers are struggling just to get a single one.
In fact, even homes that need more than a little TLC can get multiple offers if they are priced and/or located "right."
So, what's a buyer to do? There are actually a number of things you can do to make your offer competitive when you're not the only one for whom that house is their dream house:
1. Price. I hate to be predictable, but the reality is that the price you offer is probably the single most important factor in making yourself competitive. Unless you're offering cash, though, your goal should be to offer as high a price as possible within the range of values that the home will realistically be appraised for.
Savvy listing agents hate nothing more than sky-high offers that are clearly a setup to renegotiate downward when the home does not appraise for the purchase price. So, if you're offering an amount significantly higher than the purchase price, you and your agent should be prepared for the eventuality that the listing agent might ask you what comps your offer price is based on, ask you to remove your appraisal contingency or even -- especially in the case of bank-owned homes -- ask you to document that you have cash on hand to make up the difference between the listing price and the offer price, in the event the property doesn't appraise.
2. Closeability. If cash is every seller's No. 1 priority, closing is a very close second, or even a tie in some cases. Many a seller will choose a lower offer that is highly likely to close over a higher offer that is highly unlikely to close. This is why cash offers tend to trump mortgage-financed offers, even when the cash offer is lower; the seller has some level of assurance that none of the common mortgage-related glitches (e.g., low appraisals, condition issues or loan underwriting problems) will get in the way of the transaction closing.
So, make sure your offer sells you and your team as highly likely to close the deal. Let the seller know how much you like the home and the neighborhood (without going overboard -- you don't want the seller to think you absolutely can't live without the place).
Make sure your approval letter gives the listing agent a fairly detailed briefing of your qualifications, including your job tenure, that your credit has been verified, and what amount of cash you are investing into the transaction. Why does the seller care? The more cash you're putting in, the more likely you are to close the deal.
3. Non-price terms. Your agent should be in touch with the listing agent to find out whether the seller has priorities, wants and needs (other than cash, of course!) that she is looking for from the successful offer. Some sellers need a fast close; others place a high priority on taking an offer from a buyer who can take the property in as-is condition. (This is where you might even discover that some of the other offers are all-cash offers, which can be very difficult to compete with unless you beat them substantially on price.) Things like contingency length, waiving or removing some contingencies entirely, and even the personal property that you include or exclude all factor into a seller's evaluation and decision-making around your offer.
4. Your letter to the seller. Of course, your offer will be submitted along with a letter from your mortgage professional and possibly a cover letter from your real estate broker or agent. But it's often a good idea (check with your agent) for you to submit a letter to the seller as well. You may want to tell the seller a little about yourself and/or your family and respectfully let the seller know what you like about the house and neighborhood, concluding with a respectful request to consider your offer in the spirit it was made. Got a cute kid or dog? It probably wouldn't hurt to throw a photo in, either, but, again, check with your agent.
Many sellers on today's market -- even those with the luxury of multiple offers -- are still selling their homes for far below what they once thought they would be able to get for it. Your letter can make those sour grapes go down more smoothly, and might also serve to differentiate you from all those other buyers in the eyes of the seller. Boosting your likability quotient and humanizing yourself as a person, rather than just some numbers on a form, can help get your offer accepted.