Takeaways:
- You want the best buyer with the best terms, not just the highest price.
- If you run a bidding war correctly, you will get a buyer to pay over market value because they will get carried away with winning the auction.
- Set your sellers’ expectations that the buyer will want some victory to make up for their buyers’ remorse.
Just because you have multiple offers on your listing does not mean that everything is coming up roses. Here are five tips to avoid being stabbed by the thorns that go along with the roses.
1. Do not chose the offer with the highest price
You might think that’s crazy, but you want the best buyer with the best terms, not just the highest price. You want financially overqualified buyers, preferably who are paying cash and who show you that they have more than enough cash to close the sale.
Also, look for buyers who are highly motivated to buy this house. If grandma lives on the next block, and the buyers want the kids to be able to walk to grandma’s, they are not going to fuss over repair issues.
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If you pick the wrong buyer, your world turns upside down. With multiple offers, they are all begging you to sell to them. When the buyer you chose cancels the sale, you are begging them to come back.
2. Prevent the buyer from renegotiating the price
Clever agents will offer you the moon but keep the appraisal contingency. When the house does not appraise, they will ask for the price to be reduced to the appraised value.
If you run a bidding war correctly, you will get a buyer to pay over market value because they will get carried away with winning the auction.
To keep the high price for your seller, the first step is to get a waiver of the appraisal contingency. The finishing step is to have the buyer show you that they have enough cash to bring to closing to make up the difference between the amount of the loan and the purchase price.
3. Warn your sellers about payback
The buyer might feel that they overpaid when your seller signs their contract. If you did it right, they did. Set your sellers’ expectations that the buyer will want some victory to make up for their buyers’ remorse.
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This victory generally comes in the form of a request for repairs that would choke a horse. At the time the seller signs the contract, you predict the future so that the seller expects a huge repair request, and they will handle it gracefully.
After all, they have plenty of money to fix a few things. If you do not set this expectation, having the buyer you said was so great do something so obnoxious will create an emotional blowup that will make the rest of the sale difficult.
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4. Use the “power of nice”
When my sellers are going over the quality of the offers, I review the quality of the agents representing each buyer. If I have worked with an agent before, and they professionally closed the sale gracefully, that is information the seller should know.
If the agent has minimal ability as shown by things like he or she had a hard time complying with the instructions on how to submit the offer, the seller should know that also.
Talented agents typically have better lenders, better inspectors and have the ability to select better buyers to represent. If the offers are anywhere close, recommend the one with the best agent.
5. Provide a level playing field for all the players
Present all offers equally. Give all the agents the same information about what the seller is looking for in an offer. Provide the same instructions to all the buyer’s agents.
All of this information should be provided in writing, so you have a record of fair play. However, actual fairness is not good enough.
Make sure that the appearance of impartiality cannot be questioned. For that reason, I avoid representing any buyer in a bidding war myself.
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When there are multiple offers, all buyers are given to my buyer’s agents. Then, I make sure my buyer’s agents do not have access to any inside information about the seller or the other offers. The complete appearance of fairness will prevent later problems for you and your seller.
Representing sellers with multiple offers requires skill to avoid turning an excellent opportunity into a disaster. I hope these tips will let you close multiple-offer sales for high prices with a smooth transaction.
I plan to write regularly in Inman on negotiating, so if you have a negotiating question, send it to tim@timburrell.com.
Tim Burrell has been a Realtor since 1979, currently with Re/Max United in Raleigh, North Carolina; he solves agents’ negotiating problems at NegotiatingConsultant.com.