‘Multiple offers’ situation is when a listing has received more than one offer. Multiple offers are common during seller’s markets but can happen in any market. Multiples are more prevalent in big cities like Los Angeles where there is higher demand for real estate from large economies and global investment.
-I keep losing Multiple offers- how do I beat the Multi-offer Blues?
Why are there multiples?
Whether a listing gets multiple offers or no offers depends on: the property, market conditions, and listing strategy.
Every real estate location is unique. No two properties are the same (but they can be alike). There is no ‘perfect property’ that every buyer wants AND can afford to buy. To revamp an old saying- Beauty is in the eye of the buyer. Even if you have $10M to spend in Los Angeles, there are still going to be compromises. Properties meet peoples needs. Properties that appeal to the broadest base of buyers will be the easiest to sell and have the highest demand. Affordability can play a big part. For properties that are entry-level or middle of the market, they will receive more offers than luxury properties because there are more buyers plain and simple. Properties that have ‘issues’ or as I like to call them “quirkiness” – tend to be more difficult to sell and get fewer offers. For open-minded buyers who don’t fuss, these properties can be great opportunities. What they may lack in one department they may make up for in spades in another. A classic example is a busy street in a better neighborhood. For buyers who are not as sensitive to noise, they can trade noise for a more desirable location and stay in the same budget. Some other property turn-offs for potential buyers are: Power-lines in the view, crime, no parking, stairs up to the house, lack of natural light, small lot size, odd floorplan, the house looks ugly (not all houses are destined to win a design award- the ugly ones usually make up for it by being larger in size with low price per square foot). With a little creativity, any challenge can be overcome. One of my many real estate mantras is: Everything sells. Everything sells.
The current market conditions affect the likelihood of multiple offers. In Los Angeles, the real estate market goes through a full cycle every 7 to 10 years. The market goes through three phases- Buyers Market, Balanced Market, Sellers Market. When the market is a buyers market, there are more listings than buyers, and inventory is high and days on market are long (typically 6 months to a year). Property values decline in buyer’s markets and multiple offers are rare. In a balanced market, inventory and buyers are fairly balanced, and the average number of months to sell is 3-6, and prices are fairly stable. In seller’s markets, things really speed up. Listings can sell in one or two weeks and garner 5 to 10 to 20 or more offers. The most offers I have ever heard of on a property is 100. I would not want to sort through that pile of offers. Prices are going up in Sellers Markets as buyers compete with each other for a limited supply of properties. Multiple offers are very common during seller’s markets.
Some areas of Los Angeles like the Eastside, or the Valley, and Fixer-upper Properties too, regularly price properties 5% to 10% below market to encourage multiple offers. New buyers to the market are sometimes confounded when they make a full asking price offer, to not even receive a counteroffer from the seller! Once you are looking in the market for a month or two, you will have a good idea of what prices listings are selling for versus listing for in your neighborhoods, and whether a property’s list price is high or low. Listings that are priced low appear like great deals and get buyers excited- but don’t be fooled! A lot of times with the pricing under market strategy, the listing price is just a teaser price. On the Westside, it is very common for listings to be listed for 5 – 10% over the market price. Sometimes even as high as 20%! When listings come on the market that are overpriced, they tend to sit around for a while until they have a price reduction or the market catches up to them if it is going up. It can get very weird with these high priced listing. They can sit for months with no offers, and then all of a sudden have multiple offers. One sophisticated Westside socialite once told me- “the Higher the Price- the Higher the Offer!”.
What does Multiples Offers mean for the buyer?
Multiple offers means paying higher prices. Buyers competing with each other raises prices. As a general rule, the more offers a property receives; the higher the final sale price. If a property is listed for $600,000 and has three offers, it might go for $625,000 or something like that. If that same $600,000 listing gets 10 offers, maybe it will sell for $650,000. If that same property has 20 offers, maybe it will sell for $750,000 or even as high as $800,000, there is no telling.
Will the Seller send me a Multiple Offer Counter Offer?
In my experience when a seller has two or more offers, they usually send a multiple offer counter offer. For buyers, their first offer is rarely their best offer. Sellers want the highest price, but they also want to treat everyone who submitted an offer on their property fairly. By giving everyone who wrote an offer an opportunity to make their best and final- everyone has an equal chance to put their best bid forward.
When the number of offers gets high, around 10 or more- there is a lot of work involved with preparing counteroffers. Usually, the seller will pick 3-5 of the best offers to counter and reject the rest. It is very important if you think it is likely to be a multiple offers situation to put a strong offer forward first. It may be scary to write an offer in the dark above list, but if you write too low, you may not be considered. Of course, if the price goes outside of your budget or what you are willing to pay for the property, then the point is moot.
What can I do to stop the listing agent from “Shopping my Offer”?
Listing agent’s love multiple offers. Nothing feels better for a listing agent than showing their sellers what a good job they are doing for them by meeting with them and presenting multiple offers. Some listing agents, when they receive their first offer, will try to create multiple offers by notifying every real estate agent and buyers who saw the property that they have received an offer.
Every real estate agent does things different. Some agent’s will appreciate a strong offer, and not shop it because they don’t like playing games. Others, will act like the town crier and march around town square with a bell in one hand and the offer in the other hand yelling at the top of their lungs “I HAVE AN OFFER!” for anyone drunk or sober to hear.
One way to combat shopping offer syndrome is to write a short expiration on your offers or ‘response due upon presentation’ clause. The default expiration time for an offer is 3 days, shortening the response to 1 day can create some urgency. Unfortunately, if it’s a very strong seller’s market and the listing agent knows it they usually won’t be swayed. Sellers don’t need you. They have plenty of buyers vying for an opportunity to buy their property, so in these markets, you don’t have as much leverage.
If you know the listing agent has loose lips and you don’t want them spilling the beans about the details of your offer, try to submit your response right at the deadline. That way, anyone calling before to fish for information on the other offers, won’t get an extra information about what you are up to.
Should I write a complete offer?
Absolutely yes. If your offer is not accompanied by documentation backing it up it will be thrown in the trash. If you are planning on financing the purchase make sure you include a preapproval letter, and have a bank statement or stock account to show proof of funds for down payment and closing costs. I also strongly recommend writing a cover letter.
What should I expect to see in the sellers Multiple Counter Offer?
Seller Counters always say something about price. Usually seller’s don’t specify a specific price but instead, ask for the buyers “best and final” offer. This can be frustrating for buyers because buyers just want to know how much it is to buy the property and don’t want to play a guessing game. But, the seller honestly doesn’t know. It is not up to them. It depends on the buyers, and which buyer is the highest bidder.
The counter-offer usually gives 2 or 3 days to respond, so there is some time to think it over before making your best and final bid. Most of the time the seller will not accept an offer before the counter offer deadline has passed. In rare occasions, a counteroffer will come back so strong that the seller is convinced there will not receive a better offer and they just accept it.
A less popular counter offer strategy for sellers with price, is to put the price of the highest offer the seller has received “or higher”. If I was the highest offer, I wouldn’t be happy. It feels a lot like the seller is using the highest offer to provoke other buyer to pull off an upset. Why make the strongest offer feel like they are being abused, when they are probably the most likely to tender the highest offer?
Sometimes the seller will just counter all the offers with the price they want if all the offers they have received are short. This can happen when a seller listed their property low to attract multiple offers but the offers didn’t get high enough for them to get the price they wanted, or they decided once they received a bunch of offers, that they want more money. As a buyer, I would doubt the sellers motivation to sell when I see this term appear in a counter offer, because the seller is trying to dictate to buyers how much to pay. It can work, if a buyer is willing to pay that price. It can also backfire and make buyers lose interest in the property if they feel the seller is unreasonable or unrealistic.
Sellers asking for “best and final” is the norm. I advise buyers faced with this difficult situation, to ask themselves “what price would you offer and if you didn’t get the property you would not be upset”. Then if you lose in multiples you don’t have to second guess yourself or feel regret that you should have big higher.
In multiple offer situations, the seller not only can go for a higher price but also can try to improve the sale terms as well.
Sellers usually try to reduce or eliminate buyer contingencies. There are three main contingencies in buyers offers: Inspection, Appraisal, and Loan.
The Inspection Contingency timeline, by default is 17 days. Multiple offer counters will reduce this to 10 days, or in some cases as little as 7 days. Some sellers will try to write in “sold as is” language into their counter to discourage buyers from making a request for repairs. If there are no presale inspection reports, this clause is pretty flimsy. However, if the seller provides a full bevy of different inspection reports, they are expecting you to factor any of the problems found in the reports into your offer price and not to ask for a credit or repair for them later.
Appraisals are another point of contention. What is the point for the seller of getting buyers prices up, when the buyer will ask for a lower price when the appraisal falls short. In strong sellers markets where prices are rising quickly, appraisals often do fall short. The seller wants to know that if the appraisal falls short the buyer will cover it. It is not uncommon to see sellers asking for the appraisal contingency to be removed. No Appraisal happens a lot during boom years when the market goes up 10% to 20% a year.