Multiple offers on a house

These are not tips you will get from most articles out there (Also read Managing Your Own Rental Property). At least, for me, the learning process was learning these the hard way – after losing out on a house / houses that we put offers on.  Small gotchas such as the actual property loan Appraisal  (which happen AFTER the contract is signed), can totally mess with your offer and chances of winning in a multi offer situation. Read on to understand how to increase your chances of getting a winning offer in.

In a multi offer situation, there’s a few things you should EDIT on your standard contract:

1.) Increase The Offer Price – The best way to figure out how much to offer is to look at the per sq. feet price of sold houses in the SAME neighborhood (as small an area as possible). Once you have this number, simply go up by a little on the per sq. foot. Say – the average for similar houses was $100/sq foot. For a 2000 sq foot house, a fair listing price would be $200k. Now, if you went up by $1 on the per sq foot price – you would be offering $202,000. If you went up $2 – you would be offering $204,000.

Generally, you should be AT LEAST $1/sq foot ABOVE the area average – and in a really competitive situation, go in at $2 to $3/sq foot higher. Since your loan appraisal hasn’t happened yet, you don’t want this number to be so high that you could end up struggling to raise extra cash (see loan appraisal below)

2.) Reduce the days in the option period. (Typically 10 – reduce it to 5)

3.) Increase amount paid for option period (Think $100 per day – so as per line item 2 – this should be $500. This goes towards the down payment at closing. However, you don’t get this back if you terminate the contract.

4.) Increase the amount paid for earnest money (usuallly 1% of offer price – this goes towards the down payment at closing. This is refundable unless you terminate after the option period.) – I would recommend upping this to 1.5%. You lose nothing – this goes towards your down payment. If you are more aggressive, you can go with 2 to 3 percent as well, as long as you have the cash in your bank account.

5.) Removing  seller paid home warranty (around $600).

6.) Change the title policy to buyer paid. (Currently, seller paid. This is usually about 1% of the home price.)

7.) Add a cover letter and/or family picture

8.) Flexibility with move-in date? Add a note that you can close as soon as 30 days, but we can push that back a few days/weeks if the seller needs extra time.

The Loan Appraisal can throw everything out of whack

The Loan Appraisal is when the loan officer weighs in on the true price of the property. Since this is going to come in a little lower than your offer (multi offer houses usually have higher offers), the LOAN approval amount that you were thinking may now be out of play. So – if you were thinking of paying a 20% down payment ($40,000) on your $200,000 offer, what happens if the loan officer says ‘This house is worth no more than $180,000’)?

Everything changes. Now, your loan will only be approved to $180,000. So – you have to figure out a way to pay the remaining $20,000 in cash (should your decide to STILL GO IN with the 200K offer). You CAN modify your offer to have a contingency built around this loan appraisal. For example – you can offer only $5k above the appraisal – no matter what. So, if the appraisal comes in at $180k, your revised offer is now $185K (and you no longer have to worry about coming up with the $20K , rather that figure becomes $5k),

Keep this loan appraisal step in mind. Unfortunately, the loan appraisal only takes place 2-3 weeks after the offers are in. So, there’s no way to know (at the time you make your offer), whether your choice to offer $5k more than the appraisal value, is a good one or bad.

Can’t you just look at other appraisal values of sold houses in the neighborhood?

Unfortunately not. There is a tax appraisal – which is DIFFERENT from this loan appraisal. The loan appraisal values are only visible to the folks who won their offer (the actual buyer).

Summary

It can be slightly overwhelming, competing for the house that you want. With multiple buyers, there’s a lot of things you can do.