You’ve properly prepared your home for sale, and you’ve listed it at a fair market price. Showings are well underway, with a successful open house and several private showings. At this point, you should start receiving offers from prospective buyers.
Market conditions and the specific circumstances of your own listing will dictate how you proceed. This includes the optimal method of collecting such offers and subsequent negotiation strategy. Understanding these variables and how they should impact your approach is quite important.
In a buyer’s market, it makes sense to respond as quickly as possible to fair offers. This is particularly true if your listing isn’t the strongest. If you’ve decided to price it at the upper range (or above), or if there are significant issues with the property, offers may be few and far between. In this event, you’ll want to move offers through the pipeline as quickly as possible.
In a seller’s market, it might make more sense to stretch out the acceptance period to a few days before forming counter-offers. This will allow you to compare offers with one another and have a better handle on which are the strongest. Additionally, thanks to the market conditions providing you an advantage, you’ll have more leeway with buyers. They won’t be as quick to give up and move on.
The above are general recommendations and won’t apply to every situation. For example, even in a buyer’s market, if you price your property aggressively, you could receive many offers. In this case, you’ve essentially created a seller’s market for yourself, and can proceed accordingly.
Managing Multiple Offers
You might be wondering what the optimal amount of time is to collect offers in a seller’s market. It’s a bit of a balancing act. You want to provide enough time for as many offers to come in as possible. At the same time, you don’t want to wait so long that the earliest buyers move on.
Three or fewer days from the first to last offer is usually the sweet spot. Communicating that you’re collecting offers until a specific deadline is also important. If you don’t say anything, buyers may assume you’re unmotivated to sell, and move on to other homes. Letting them know you’ll respond after a certain date keeps them interested while you continue collecting more offers.
Once the deadline has passed, you’ll want to consider each offer against the others. Offer price is obviously a crucial element, but not the only factor of importance. You’ll want to pay attention to any contingencies, terms or requests as well. Sometimes a solid offer price is accompanied by deal-breaking terms.
It’s likely that you’ll receive some low-ball offers. This could mean the buyer isn’t serious about offering a fair price. Alternatively, perhaps their strategy to get the best price possible is simply to start low. Your response to such offers will largely depend on the conditions of both your listing and the market at large. A good agent will be able to guide you through this process and help you make strategic decisions.
Regardless, we recommend that you respond to every offer received. There’s no downside to countering offers instead of rejecting them. You never know the outcome from even the most unlikely offer. However, you know with absolute certainty that ignoring an offer will result in no sale.
Remember, offers don’t reflect on you personally. It’s tempting to feel offended by a really low-ball offer, especially when buyer’s agents justify them with harsh criticisms of your home. Just keep in mind that selling a home is ultimately a business transaction. The more you can remove emotion from the process, the better off you’ll be.
Handling Bidding Wars
In the event that your property is highly sought after, you may find yourself at the helm of a bidding war. This is a home seller’s dream, as it means that two or more buyers are fighting over the opportunity to purchase your home. This extended back and forth typically means that the offer price rises, and/or contingencies and conditions are minimized.
There are a number of factors that can result in a bidding war. Most commonly, these occur between investors looking to flip the property, who are purchasing in all cash. This is because loan amounts are dependent on the appraised value of the home. Therefore, there’s only so much the offer price can be increased before the loan won’t cover the excess. This can price many buyers out if they don’t have the cash to fund the difference.
Flippers don’t usually have this issue since they’re not typically using loans to fund the purchase. Of course, there’s still a limit to what they’ll pay as well, since they’re motivated by potential profit.
Another element that can cause a bidding war is a lack of supply in an area of high demand. When there are relatively few homes on the market, buyers lose leverage to sellers. When taken to the extreme, this can result in a desperate struggle for any properties that are available for sale.
The key to maximizing the chances of a bidding war are to allow time for several offers to come in, and then use offers against one another. When buyers are aware of their competition, it often encourages them to step up their offer. This is especially true if they’re emotionally invested in the property. If you’ve done a good job preparing your home for showings, the chance that this occurs will be higher.
As always, a realtor who is keenly aware of the local market conditions and how they relate to your home sale will best be able to help position your property. While you can’t guarantee a bidding war, you can increase the chance it occurs by making good decisions.
If you have any questions about navigating multiple offers or a bidding war, please let me know in the comments. You can also contact us if you’d like to discuss specifics of listing your home in more detail.