Multiple Offers: How High Should I Go?

Generally, it means that the seller will accept the offer that nets them the biggest return with the smallest risk. The seller will take into account your offer price, terms, and conditions.

Take these three scenarios:

1. Cash offer of $97,000, no appraisal contingency, a physical inspection, and 15 day close. Net offer of $87,000.
2. Conventional loan offer of $100,000, appraisal contingency, physical and pest inspection, sale of current home contingency (not in escrow), indeterminable close date. Net offer of $90,000.
3. FHA offer of $102,500, appraisal contingency, physical and pest inspection, 3% credit for buyers closing costs, and 45 day close. Net offer of $89,425.

As you see from above the purchase price doesn’t guarantee that your offer is the best. From the three above the cash offer, though the lowest offer price, looks to be best because the property doesn’t have to appraise for a certain amount, isn’t contingent on another home selling, doesn’t need to meet certain appraisal guidelines, doesn’t have a buyer credit, and can close as quickly as escrow can perform their duties. The FHA offer looks pretty good but we need to remember that the seller will have another full mortgage payment, taxes, insurance, and hoa dues when compared to the 15 day cash sale. In actual figures, the $2,425 difference could be negated.

For one thing, I will never to you what to offer. This is your home, your money, and your decision. My job is to arm you with the appropriate information so you can make an informed decision. Here are a few things to think about when you’re in a multiple offer situation.

1. What do you feel comfortable offering? Multiple offer situations bring a high level of emotion and people tend to offer more than they would really like to pay. Set a bar that you’re not willing to go over so you don’t end up having buyer’s remorse months down the road.
2. What are you able to pay? If you’re at the high end of your budget it might be best to stick with you original offer. If you go too high you might be out of your purchase power your loan will be denied.
3. What is the market value of the property? If you’re getting a loan the property will need to appraise accordingly. Offer too high and get a low appraisal and you’ll be stuck with only a few options. You can pay the difference at closing, try to negotiate with the seller to get the price down (good luck with an REO or Short Sale), or back out and start looking for a new home. Have your agent run a CMA on the property to find out if your potential offer may be over the value of the home.

Multiple offer situations are tough. You may know the the number of competing offers but you will never know the competing terms. My most recent multiple offer situation led to the accepted offer being taken at 11% over the list price, all cash. This was on a $225,000 home and it was short sale.

My advice: Stick to your budget and don’t let your emotions run rampant. If you don’t get it then it wasn’t meant to be.

For more information about buying a home in the Reno and Sparks areas contact me at (775) 870-4280 or Kris@Reno-Realty.com