Is Highest Always Best?
If you’re selling your home and have attracted multiple bids, super! Now, how do you choose the best offer?
According to the National Association of REALTORS®:
Your listing broker can explain various negotiating strategies for you to consider. For example, you can accept the “best” offer; you can inform all potential purchasers that other offers are “on the table” and invite them to make their “best” offer; you can “counter” one offer while putting the other offers to the side awaiting a decision on your counter-offer; or you can “counter” one offer and reject the others.
Buyers use strategies. A seller must anticipate those. It will help the seller rank deals accurately, zeroing in on the buyer most likely to close, and to leave the seller in the best position at closing.
Here, we explore some factors to weigh as you plan for a “good problem” of getting more than one offer.
Communicate Early and Often
The moment you know several people are serious about buying your home, you have a communication task. The seller’s side needs to make sure the buyers’ agents know what’s going on, and this has to be done properly.
Indeed, real estate ethic codes oblige the seller’s agent to be transparent and cooperative, and to present fair and prompt counter-offers. No one can say how any individual buyer will respond to these communications. That’s to be expected. Some buyers, learning that there is competition, will raise their bids. Others may decide to go off and look at another property.
Either way, keeping communication lines open is vital. Everyone involved should feel confident that they’re being kept in the loop and promptly updated. At the end of the day, a seller hopes to find the most cooperative and reasonable buyer, and good communication helps that happen. It’s always good to hand off the home to a person who senses appreciation and goodwill in the transaction.
Resist the High Offer
A high bid is sure to get a seller’s attention. But there are several reasons to think twice if it’s too high:
- The high bid could come out essentially lower than the offers of others who won’t expect as much from you by the time you close.
- As your agent can explain, commissions, fees, taxes and other costs may vary, and can be based on sale price.
- If a buyer’s offer significantly exceeds your asking price or the actual value of the home, the deal could fall through later, when the buyer’s mortgage company sees an appraisal that values the home at a lower price point than the bid.
- A lower bidder could be the one most likely to successfully get to the closing table. Mortgages can fall through at the eleventh hour. Sometimes, a buyer’s employment or credit situation changes in the runup to closing. When selecting one bid out of several, take note of who is demonstrating their commitment by placing substantial earnest money down.
High bids can be part of a buyer’s strategy. The buyer wants to impress the seller, of course, but might also think the seller’s price will come down during negotiations based on the appraiser’s or the inspector’s report. And this brings us to our next section…
Consider What’s Contingent
Be careful not to cut your profit by making more concessions than necessary. Be careful, too, with contingencies that take a lot of time and extra effort to meet. A buyer who expects hefty contributions to closing costs or an array of repair work might not be your top choice.
The renter whose lease is ending, or a potential buyer who is moving from a popular condo property, might be ready to close the deal much faster than someone with a big house that’s harder to sell.
Be sure you, as the seller, can keep the ball moving, too. Is your deal contingent on your purchase of your next home? You might consider having a “Plan B” in case you run into challenges as a buyer.
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And which potential buyer has money ready to cover the “appraisal gap” if the home isn’t valued as the parties expect? Has one hopeful buyer handed you documented proof of funds ready in an account specifically to cover an appraisal gap? Assurances of this type reduce your risk as a seller, therefore adding real value to an offer.
Think About the Inspection
If you’re selling in a competitive market, your agent might get a potential buyer to waive an inspection contingency. Or you might counter a high offer with a discount if the buyer takes your home as-is, or with a set limit on what you’ll pay for items the buyer wants you to fix. A set limit is a good example of communication. The buyer gets an allowance if something substantial turns up in the inspection. The seller has a known cap on repair costs.
Pro tip: By waiving an inspection, a buyer gives up leverage in negotiations, and strengthens the seller’s position. Waiving standard contingencies puts a buyer (and the lender than backs the buyer) at heightened risk. Not every buyer can waive an inspection or appraisal contingency. Especially when the buyer’s financing depends on a government-backed loan, contingencies may be baked into the required approval process.
Even if your buyer decides to waive an inspection contingency, you’ll still be disclosing defects that impact the value of your home, using a state-specific form. Sellers who omit or mislead buyers with incomplete disclosure run the risk of liability for failing to disclose defects that they, as homeowners, should have known about and declared.
Of course, sellers who use the term as-is are really just pointing out that the house is older or needs some work, hinting to buyers that the seller is discounting the price appropriately. But real estate agents and real estate lawyers can explain the appropriate contractual language to limit the buyer’s leverage.
☛ We offer tips here for the sellers thinking of selling a home as-is.
Tune Into Your Agent’s Expertise
Numerous contingencies must be met during the course of a home sale. They vary according to the seller’s and buyer’s unique blend of circumstances. For example, is a condo being sold? Expect the buyer’s lender to check the health of the condo association’s reserve fund. Pending lawsuits against the association can throw a loan approval off track, too. Some issues defy negotiation!
In any case, when multiple bidders turn up, an experienced real estate professional can advise the seller through the negotiating stage. Best practices are guided by the home state’s law, local practices, and the real estate agent’s ethical responsibilities. Yet the seller is always in the driver’s seat when counteroffers are made.
As a seller in a competitive market, you’ll have to think on your feet. We hope this brief guide helps you anticipate possible scenarios before they unfold, and choose your buyer with confidence.
Supporting References
National Association of REALTORS®: A Buyers’ and Sellers’ Guide to Multiple Offer Negotiations (Sep. 27, 2005).
National Association of REALTORS®: Code of Ethics and Standards of Practice (effective Jan, 1, 2021).
Photo credits: Ivan Samkov and RODNAE Productions, via Pexels.com.