By Ali Donoghue
What if you find a condo you love, but someone else also loves it? It happens more than you’d think. In fact, in many urban areas there are more buyers than suitable condos. That’s great for sellers, but not so great for you – especially if you’re buying your first condo.
If you run into this situation, you’ll often be asked to make an offer in competition with the other people who want to buy the place. This is known as a multiple offer situation. It can be stressful and, in the heat of the moment, you may be tempted to bid more than you can afford. So here are seven strategies to win a multiple offer situation without suffering from the winner’s curse.
Keep Your Cool. While you may need to act quickly, you don’t need to act impulsively. Take a few deep breaths. Remind yourself of your price ceiling: the maximum amount you can pay based on your income and savings and still be able to live comfortably. Don’t go above that amount, even if you really want the place.
Also, look at comparable condos in the neighborhood (or building). Whatever you end up offering, make sure it’s in line with what’s going on around you. If people are overbidding the list price, you’ll likely have to do so too. Decide what it’s worth to you to get this condo, in this neighborhood. Make your offer accordingly.
Present with Strong Financials. You’ve gotten pre-approved for a mortgage. You have a steady job. You’re putting down at least 20 percent. Ideally, you meet these fundamentals. Make sure the seller knows this; the seller will be interested in someone who is financially stable and who will be able to complete the deal quickly. Though, be warned: If you’re going against a bidder who can pay all cash, you might be in trouble since an all cash offer is even more secure (from the seller’s perspective) than a buyer with strong financials and almost a third of home sales in 17 largest US cities have been cash deals in recent years.
Also, if at all possible, choose a local lender. Often the agent for the seller will have experience working successfully with him or her, and that makes the seller comfortable that the deal will get done. If the bidding is especially competitive, I have asked my client’s lender call the seller’s agent to reassure the seller’s agent that my client’s financials are strong and that my client will have no trouble getting the loan. It can make all the difference.
Build a Strong Team. Similar to having a good lender, make sure you hire a reputable and well-respected inspector and an experienced lawyer. And, of course, have a good, local real estate agent working in your best interest. When you make your offer, you want the seller to see that you have an experienced, knowledgeable team that will get the deal done.
Consider Taking As-Is. You’d still do a home inspection, but you’d only be looking for deal-breaker issues such as a major roof repair or a sinking foundation. You can’t renegotiate purchase price after the inspection – you can either pay full price or walk away (if there are major issues). This way, the seller has confidence that the offer you make will be the amount you’ll pay. And you’d still have a contingency clause should there be something seriously wrong with the place. Since you’re in a multiple offer situation, you wouldn’t have had much room to bargain over these small fixes anyway. Just make sure you budget a bit extra to fix any minor issues yourself.
Increase the Earnest Money. When you make an offer and have it accepted, you’ll be asked to put down a certain percentage of the purchase price as a sign of good faith. If you back out of the deal, the seller will get the earnest money. Once the offer goes through, that amount will be credited toward the sale price.
Usually, the earnest money is small. In Chicago, it’s around 3 to 5 percent of the purchase price. If you agree to increase it, you’ll indicate to the seller that you’re serious about getting the deal done – though you’ll also be putting more money on the line. (Note: If the deal falls apart within contingencies, the earnest money will be returned to you.)
Be Flexible with the Closing Date. Try to find out what’s important to the seller. Does the seller need to have the closing date pushed back so the kids can stay in the same school for the final month? Or does the seller want the date pushed up because of a new job in a new city and a need to move ASAP? What if the seller wants to rent back from you for two months after the closing while searching for a new home? If you’re willing to meet the seller’s needs, it will often put you ahead.
Write a Cover Letter. At Redfin, we’ve found that one way to add value to an offer is to personalize the experience. Our agents can help you write a cover letter in which you introduce yourself, explain what you love about the place and tell the seller how much it would mean if you got it. It’s a way to put a face on your offer; if you and the seller make a connection, you may get the place even if your offer isn’t the highest.
In a multiple offer situation, you want to emphasize your strengths, appeal to the seller and avoid going over your budget. These strategies help you do all these things – and put your best foot forward.
Ali Donoghue is an Agent at Redfin, a national real estate brokerage. She’s completed numerous condo deals on the buyer side. She’s also a lifelong Chicagoan who has watched the Windy City’s neighborhoods transform over the years.