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Key Takeaways:
- Talk with sellers clients upfront about what factors will be important to them in a multiple-offer situation.
- Organize multiple offers in a spreadsheet, with important factors highlighted, so they’re easier for seller clients to compare.
- Help buyer clients present neat, complete offers that signify they’re prepared to close the transaction.
On a crisp, cloudless Thursday morning in late February, Ellen Coleman was feeling confident as she published her newest listing online, a 1,300-square- foot, three-bedroom home in a popular neighborhood. Springlike temperatures were calling people outside. The listing might have been disadvantaged in a normal market, says Coleman, SRES, AHWD, a sales associate with RE/MAX Realty Centre in Olney, Md. The 70-year-old house was in need of renovation and had an unstable deck. But its $275,000 price tag hit the affordability sweet spot that so many buyers were desperate to find.
An hour after the listing went live, Coleman received the first offer from a builder who was willing to pay above the asking price without seeing the home in person. “I thought, ‘OK, we’ve begun,’” she says. She had a weekend vacation planned, so another agent was handling in-person viewings. By Sunday, the listing had received 88 offers, more than 60 of them all-cash. “My email kept crashing because I was getting contract after contract that was 40 to 50 pages long,” she says.
Managing the Overload
To be sure, it’s rare to garner so many offers on one listing, and the market has since cooled. But bidding wars are likely to remain common because of the national housing shortage. Ten to 20 offers is fairly typical in hot markets, real estate pros say. So, develop a game plan with listing clients about how you’ll work together to narrow the options.
First, if you feel anxious about the high number of offers one of your listings is receiving, set aside your own feelings, says Steve Allcorn, managing broker at RE/MAX DFW Associates in Flower Mound, Texas. It’s the clients’ decision to entertain as many offers as they want. However, you can have a conversation with them when it becomes critical to consider cutting off bids. Coleman says she decided to keep the bidding open on her wildly popular listing because both she and her seller “felt that if someone took the time to see the house, we should give them an opportunity to make an offer.”
Your state law may have provisions regarding the presentation of offers. In addition, the REALTORS® Code of Ethics, Standard of Practice 1-6, requires you to present offers to your clients “objectively and as quickly as possible,” regardless of whether you think those offers meet their needs. “If I don’t present an offer, even if the terms aren’t there, I could face a fair housing issue,” says Bret Weinstein, SFR, broker-owner of BSW Real Estate in Denver. So always notify sellers and provide a copy of the contract.
Presenting every offer doesn’t mean your sellers have to give each one serious consideration. If you’ve had an upfront conversation about their priorities, it'll help you compare offers, Allcorn says. You should know whether factors other than price, such as closing timeline, matter to your client. That was the case for Coleman’s clients, who wanted to sell quickly and so turned down the two highest offers because they included contingencies that affected the timeline of the sale, she says.
Coleman organized the offers on a spreadsheet with columns for contract terms that were important to the sellers, including closing timeline, price, financing, and contingencies. The sellers chose a cash buyer who paid $460,000 for the home—a cool $185,000 over the asking price—and were able to close in a week.
Being a Contender
Buyers and their agents have a lot to contend with, too, when competing in a bidding war. The way an offer is submitted, whether it’s well-organized and complete, has a big impact on its viability.
Buyer’s agents can learn from the process of elimination that listing agents and sellers go through. Weinstein contacts buyer's agents whose clients lose in a bidding war and extends an opportunity to discuss why the offer failed. “Maybe 10% call me back,” he adds. “Agents who are actually looking to educate their clients will call back.”
Submitting buyers' best and highest offer as early as possible isn't the only consideration. Sloppily written contracts can’t compete, Weinstein says. Coleman says about 20% of her listing's 88 offers had contracts that weren’t properly filled out or were missing information, such as proof of funds. “A very basic issue can take you out of the running,” she says.
Buyer’s agents should be proactive about communication with the listing agent rather than submitting an offer and waiting for a response. Coleman says the agent who submitted the winning bid on her listing was “attentive without being obtrusive. He had the bank call me to verify his client’s funds. It was a very clean offer; I didn’t need to figure out what it was telling me. You want to be prepared because that speaks to how the rest of the transaction will go.”
Prepare for the Unexpected
Flexibility is key in a bidding war. In an intense competition, buyers and sellers can surprise you by changing their priorities midstream, Allcorn says. “A lot of sellers don’t know what their bottom line is until they see what their options are,” he says. “They say what they think their bottom line is and then pick an offer that’s $5,000 less based on emotion.” All you can do is lay out the offers that make sense for your clients’ goals, guide them with your expertise, and accept the decision they make.
Takeaways: Counseling Sellers
- Before you put a listing on the market, find out as much as you can about your sellers' goals. That way, you'll know which offers are likely to stand out to them. Here are some topics to discuss at the start of the working relationship.
- Ask sellers about their ideal move time. Sellers often have a specific time frame in mind, such as before a new school year starts or after a holiday, Weinstein says. That can be an important factor when choosing an offer.
- Determine whether the sellers might need a leaseback agreement, Weinstein says. Being able to stay in the property for a period following the closing buys sellers time to find their next property. Many buyers are offering a leaseback as a way to stand out from the competition.
- If property condition is an issue, know whether the sellers are looking for an as-is offer and willing to price the home accordingly, Coleman says. Many affordable fixer-uppers are experiencing the most intense bidding wars.
- If the sellers demand privacy and don’t want to spark a public bidding war, consider whether a pocket listing is the right route for them. Make sure to explain the drawbacks, such as potentially losing out on getting fair market value. And remember that all listings that are marketed to other agents or buyers—including pocket listings—must be placed in the MLS, according to the National Association of REALTORS®’ Clear Cooperation policy. Your MLS should have rules to explain how the policy works.
