In the last week (mid June 2010) I successfully negotiated three sales contracts for three homes in Short Hills, NJ and all of them were multiple offer situations. One of the properties was for my own listing and for the other two I represented the buyer. In the spring market of 2010 alone, I am aware of over 50 multiple offer transactions in Millburn, Livingston, Maplewood, South Orange, Summit and Short Hills, and that just scratches the surface.
In the cases where I helped the buyer arrive at the winning bid we looked at several different points to help’ ‘win’ the house. There is an old adage that definitely applies here: ‘What goes around, comes around.’ In one of the negotiations the Realtor called me to say that my buyers’ contract (which was one of 6 offers) was almost identical to another offer. The sellers could not decide which to choose and they asked the agent for advice. Thankfully, over the 20+ years we have known each other, we have always had a respectful rivalry in the business and she told them to go with my offer because she could trust me and I would get the job done well. Being nice over the years has paid off and buyers need to remember that not just your offer is being considered; so is your behavior while looking at the house and throughout the entire process of the negotiation.
The price is usually the most important thing, right? Wrong! Many sellers will actually accept a lower number if the terms are stronger. I’ve had sellers take as much as $50k less from a cash buyer, just to avoid the stress of the lending approval process. So how do you strengthen your terms? Remember you are not bidding alone, so you have to strategize about what the other buyers might offer, but then you also have to beat them and give a better offer, and here are some tips.
The strongest term a buyer can offer is a non-contingent offer; NO MORTGAGE CONTINGENCY. This term takes all the risk off of the seller and puts in on the buyer. The seller no longer has to worry about the buyer’s job, credit, bank of choice, sale of their own house, or the appraisal. Those items alone have been the ruination of many deals. This is a big risk for a buyer, and most attorneys will advise against this. (It is not my advice for clients to ignore their lawyers.) But, if you are putting a lot of cash down and are in a secure job with a credit score of over 700, this may not be too big a risk after all. Someone is going to give you a loan; you just need to know how much and it is rare not to be able to borrow atleast 50% if you have a solid downpayment or a family member to co-sign the loan. Even if you have to take a higher interest rate to do this, you can always refinance later. Remember, this is just to GET THE HOUSE. It may cost you a little more money, but looking at houses every weekend for months on end, bidding and losing out, or even worse, not having a place to live, or living with relatives might have a cost too. These are quality of life issues and you need to weigh what it is worth to just have closure and a house that you really like and can live in for many years.
Many buyers have no doubt of being able to put down more cash if the bank requires it. Many know they can carry two homes if they need to (no one wants to be long on two mortgages if they can avoid it). If you have a pre-approval, the odds are in your favor that you will get a loan. Okay so the rate may be higher than you’d like or you may have to put down more cash than you’d prefer, but if you feel confident of getting the approval, than waving the mortgage contingency is a decent strategy. It strengthens your offer and gives you a big advantage against other buyers — although other buyers may also wave the contingency so then what?
What else works? Find out when the sellers would like to close and offer them a window of a month’s time when they can chose the date of their preference. This can’t be open-ended for ever, but giving them a choice offers them more flexibility and after all, you are competing with other prospects so this can be one of your advantages. You can also offer them one free week or up to a month to stay in the house after closing. Sellers LOVE to get their money and then not have to move the same day. It buys them some time and piece of mind. It costs you the carry without actually having possession of the property, but what is a week or even a month in your lifetime if you secure the house of your dreams?
Another option is to bring an inspector with you on one of our visits (before you bid) for an informal look around to make sure nothing in the house has a serious defect. At that point, without a written report, you can limit your inspection requirements to only major issues, wood destroying insects and environmental concerns that will need a more thorough investigation. Sellers hate to negotiate and then have the buyers come back to nickel and dime them about little things in the inspection. If you eliminate that from the beginning, they will like your contract better. Also, agree to conduct the inspection quickly. Sellers do not want to be hanging around for weeks waiting for your inspectors. Promise to inspect quickly, review reports and get your attorney’s letter out fast.
A larger downpayment can also impress a seller. If you write a check for $1,000, $5,000, $10,000 or even more, it is no guarantee that your contract will be accepted, but the more you put down and the faster you offer to bring in your 10% escrow, the more commitment the sellers will sense. Some contracts allow for the escrow money to come in as late as 14 days after attorney review is over. I suggest you try to get that money delivered within 7 days. I often tell people you can get engaged with a 1 carat diamond or a 2 carat diamond and you are still engaged. Most girls will be excited by the larger stone and most sellers like to see a bigger check. (This money is usually refundable if the purchase does not get consummated due to attorney review, inspection issues that cannot be negotiated or problems with the loan if you have a contingency).
There is still more: Due to so many offers coming in on homes and sellers not being willing or able to meet with all the Realtors for individual presentations, a letter of introduction by the buyers or by the selling Realtor is key. I often include a family photo to show the sellers how charming and friendly the family looks and it does help when a seller can visualize the nice family that will be moving into the home. This is a business transaction for many, but the emotions run high and people often wish to sell their home to someone they like too. When the buyers say how much they love the kitchen or the decor or the gardens, the sellers feel flattered and are appreciative that someone recognizes all the work and love they have poured into their home.
Let’s face it. This is a competition and not always fair. Sometimes the listing agent has his or her own buyer and they are willing to reduce the fee to sell the house themselves. In that case, we adjust our fee to be competitive and we accept half of whatever total the fee will be so our buyers are on a level playing field. If you lose a bid with someone from Towne Realty Group, it won’t be because of a reduced commission offered by the listing Broker. There are times when a seller knows the other Realtor or the other buyer and they chose them due to a comfort level of trust and famililarity, that they don’t have with a stranger. Sometimes you are told the house is yours, only to learn in attorney review that a better offer has come in and you are being dumped, without even having a chance to increase your bid. (that is another story and will be another blog post later).
So how do you determine what is a fair price? Your Realtor should provide a thorough market analysis of all homes that are under contract and sold in the neighborhood. Being familiar with the inventory and understanding those selling prices helps you (and the bank) substantiate the current market value. Knowing the rate of absorption, the days on market, the percent of list price to sale price, the number of price reducitons and also the number of competing bids, should guide you. My advice is to think carefully about how you would feel if I call you and say “You lost the house. The other buyer paid ‘x’.” At what price are you willing to let someone else have what you want?
Name that price and then walk away knowing you are ok if you lose because you went as high as you could. Let’s say you are willing to pay $25,000 over list price. Perhaps the house was priced low to begin with. Would you still have looked at the house if it were priced higher. Probably so. If 3, 4 or 5 other buyers are also bidding, that should tell you that you are not the only one who likes it and it must have value. Many buyers get caught in analysis paralysis and try to come up with a rational number. That will not always work when you are bidding against a mother who is pregnant with twins and their NYC apartment is sold and the HAVE TO MOVE!! We never know who you are up against but the person who wants it or needs it more, often wins. I recommend paying $1,000 to $2,000 over that round number so if you are bidding on a house for $799,000 and offering $850,000, go ahead and add on that extra amount and pay $852,000. Many a contract was won with $1,000 or $2,000 difference (if the terms are even.)
Each of the four times I purchased real estate, I paid list price or very close and I have never had a regret. I got the property I wanted and I felt good about it. My parents and grandparents always owned their homes and I believe it is part of the American Dream. Did the market go up and down? Yes. Did my stock portfolio go up and down? Yes. Could I live in my stock portfolio? The answer is no.
I am not suggesting that people overpay for every home they purchase but I do believe that when you admire something and you get it, even if you may have to pay more than you want, or more that the comps indicate, there is value in owning something you love and having closure. Good luck!! Karen Eastman Bigos , e-PRO and Broker -Sales Associate for 25 years in Millburn & Short Hills, NJ