By Dian Hymer
One of the problems with multiple offers in real estate is figuring out what price to offer. To some home buyers it feels like throwing a dart at a board.
It helps to know the selling prices of listings that sold recently in the neighborhood where you'd like to live. Finding out how many offers are being made by other buyers can also make a difference. It's usually safe to assume that if there are eight or so offers, a listing will sell for a higher price than it might if there were only two or three offers.
But, it's hard to know. If you're bidding against a buyer who has made offer after offer and lost out every time, you could have tough competition. Some buyers will raise the ante considerably rather than loose out the next time, even when there are only two offers.
In the heated real estate market of the late 1980s, you could virtually count on being the successful bidder if you offered an additional $5,000 to your price for each competitive offer. There are no foolproof formulas that work in today's market.
A sense of frustration causes some buyers to bypass the guessing game by making relative bids. With a relative bid, the buyer offers to pay a certain amount more than the highest priced offer the seller receives.
For instance, rather than offer a set price, such as $500,000, you might offer to pay $5,000 over the seller's highest offer. Or, you could offer to pay a specific price, like $475,000, with a provision that you'll pay $5,000 over the seller's highest offer if your price isn't good enough.
In order for the seller to take a relative offer seriously, the offer should include a cap on the price you'd be willing to pay. For example, you might offer to pay $475,000 or $5,000 over the seller's highest offer, not to exceed $525,000. Otherwise, how is the seller to know how high you'd be willing to go?
Sometimes a buyer who makes a relative bid wants to have proof that the seller actually received a higher offer. This provides protection for the buyer, but can provoke a less than enthusiastic response from the seller.
Regardless of how ambitious your relative offer might be, there's always an element of uncertainty from the seller's standpoint due to the fact that a relative offer requires a counteroffer to solidify the deal.
Let's say you offer $500,000 or $5,000 over the best offer up to a price of $525,000. The highest offer is $515,000. If the seller wants to accept your offer to pay $5,000 more, or $520,000, he will need to include this in a counteroffer to you.
What are your chances of succeeding with a relative offer? Some sellers would consider the $515,000 a better deal, despite your offer to pay more. The $515,000 buyer made a better offer to begin with. He put his best foot forward, and was willing to pay a higher price regardless of what another buyer might offer. Such a display of conviction carries weight with some sellers.
The other issue that comes into play when a seller considers a relative bid is that he must issue a counteroffer to the relative bidder at a higher price than was offered. There's an element of uncertainty. What if the relative bidder has a change of heart? The deal isn't done at the higher price until the counteroffer is signed.
THE CLOSING: Some sellers would rather not risk losing the buyer who offered the highest price by countering a buyer who made a relative offer.
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