By Dian Hymer
It appears that the real estate market is slowing down from last year's torrid pace. Even so, many buyers are still finding themselves in multiple offer competitions.
When inventories of homes for sale are low and interest rates are also low, buyers can expect to run into competition. Even in slower markets, the best listings at the best prices can generate more than one offer.
Some buyers shy away from multiple-offer competitions for a variety of reasons. They may be afraid of over-paying. They might have lost out before and don't want to go through the agony of defeat again. Granted, a multi-bid encounter increases the anxiety level of the home buying experience. But, if you are successful, you have the benefit of knowing that you've bought a home that was in high demand.
The key to avoid over-paying in a multiple-offer competition is to have a good grasp of current market values in the area. To develop this expertise, look at a lot of listings. Then, follow up with your real estate agent to find out what these listings sold for. It's also helpful to know how many offers there were.
Buyers who haven't done their homework may not have a sense of how much they should offer when there is more than one offer. If you haven't educated yourself about selling prices, you may feel uncomfortable offering significantly more than the asking price even though this may be precisely what you need to do if you want to buy the property.
It helps to work with a real estate agent who has intimate knowledge of the area in which you want to live. He or she can educate you about listing and selling prices as you spend time together looking at listings. Some buyers find it helpful to take notes and to keep a file of listing flyers.
House Hunting Tip: In general, the offer that wins in a multiple-offer competition is the one with a combination of the best price, the shortest closing and the fewest contingencies. A contingency is a condition that must be satisfied before the transaction can close. Typical contingencies are for inspections and for the buyer's financing. Preapproved buyers have an edge because they don't need a financing contingency.
Some buyers are choosing to waive contingencies in order to make their offers more attractive to the sellers. But, it's risky to waive a contingency if in fact the issue covered in the contingency must be satisfied for the transaction to close.
For example, an appraisal contingency makes the contract contingent on the property appraising for the sale price for the purposes of obtaining a mortgage. If the property appraises for less than the sale price and you don't have the protection of an appraisal contingency, your deposit could be at risk if you back out of the deal. If the appraisal comes in low and you choose to proceed with the transaction, you'll need to make a larger down payment to make up the difference between the appraised value and the sale price.
Buyers in some areas are choosing to make relative bids in order to maximize their chances in multiple-offer competitions. With a relative bid, a clause is included in the contract that states the buyers will pay a certain amount, like $5,000, over the best offer the sellers receive, up to a maximum price of a certain amount. The sellers must issue a counteroffer to the relative bid that stipulates the sale price.
The Closing: Some sellers would rather just accept the best offer than risk countering a buyer making a relative bid.
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