It's always difficult to decide what to offer when you're in competition. It helps if you've done your homework and you know local market values well. Working with a good real estate agent who can keep you informed on current market trends is helpful. The Internet has a wealth of information about listings in most areas of the country.
Attending public open houses in the neighborhood where you'd like to live is also a good way to learn about values. However, don't be misled by the list price. Some listings are priced at market value, but many are not.
The most significant information is the sale price of comparable listings that sold within the last three months. In multiple-offer situations, a listing might sell for over the asking price. However, this is not always the case.
A complicating factor is that some sellers intentionally price their home low in order to stimulate multiple offers. This is particularly so with short sales and foreclosures. For example, a listing priced at $325,000 that receives 10 or more offers might really be a $400,000 house.
HOUSE HUNTING TIP: It takes a lot of time and emotional energy to make an offer. Buyers are often devastated when they lose, and some buyers fail over and over. You can minimize the agony if you are realistic about what you can afford and about the accuracy of the list price.
If you know that a listing priced at $325,000 is likely to sell for $400,000 or more, you can tailor your offer accordingly. But, if you can afford to pay only $335,000, your offer probably won't receive serious attention if there are six or more offers. It might be better to pass on this one and save your energy for a listing that you can afford to buy.
When a listing sells for over the asking price, there is always the possibility that the property won't appraise for the purchase price. If your contract includes an appraisal contingency, you can usually withdraw without penalty. If you back out and don't have an appraisal contingency, your deposit money could be at risk.
All-cash buyers or buyers with large cash downpayments who don't care if the property appraises for the purchase price often don't include an appraisal contingency in their offer. It usually won't make a difference with the lender if the buyer is paying more than the appraised value as long as the cash downpayment is large enough. Buyers competing against a high-cash-down buyer may not have a chance, even if they offer a higher price.
For example, a seller might accept an offer for $10,000 lower than the highest offer if the lower offer includes a 20 percent cash downpayment and the buyer with the highest offer can put only 5 or 10 percent down. You have the best shot in a multiple-offer competition if you can put 20 percent or more cash down, and you have a solid preapproval letter from a lender. Offering to close quickly is usually a benefit to the seller.
Today's sellers are looking for certainty, which means a financially solvent buyer with a clean offer that's not loaded with contingencies. An offer made contingent upon the sale of another property probably won't fly in a multiple-offer competition.
THE CLOSING: Buyers bidding in the hot segments of the market need to persevere. It may take a few offers before you succeed. Just don't waste time making offers that don't stand a chance.
Inman News November 9, 2009
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