A multiple offer situation often means a seller has the upper hand in a deal, but that has a lot less to do with the price than you might think.
The price shouldn't be the only factor in whether a seller accepts an offer. Nearly everything can be negotiated in a home sale, down to the furniture and color of the walls.
“When you’re in a multiple offer situation, it’s important to thoroughly research all of those offers and not just the offer price,” said agent Chris Howey of Kentwood Real Estate in Denver. “You want to consider all the terms, including inspection, appraisal and loan terms.”
Accepting the highest offer could mean conceding in other areas, such as paying the other agent's closing costs or even selecting a difficult buyer who may back out of a sale or make the process more of a headache. Once that high offer drops out, you may lose the upper hand and be left to your second choice.
“Arguably, more important factors are buyer qualifications, motivation and reasonability,” said agent Michelle Schwinghammer of West + Main Homes in Denver. “A good agent will help a seller compare and contrast offers and choose the strongest one that best meets most of their goals.”
Look at the big picture rather than just the price; that begins with knowing what you need and want.
Agents will come calling, so know what you want
An experienced agent’s first move before submitting an offer is to call your representative.
The agent will want to learn about the other offers and what you, the seller, want. It helps them write a strong offer that works for you and your buyer while staying competitive.
Know what small details are important to you as a seller so your agent can communicate them. Do you want to sell and then pay rent to stay in the home until a certain time (called a leaseback)? Do you want to be out of the home by a certain time or stay until a certain date? Do you want someone who will pay for any work needed that the inspection identifies?
Other details, like the lowest price, are things you should know but might not want your agent to share with prospective buyers. Have a conversation with your agent to identify what can be shared. Sharing and knowing what you want can help you receive strong offers.
What does your agent think of the buyer’s agent?
Selecting an offer from a buyer with a strong agent can affect the rest of your selling experience and determine whether it will be smooth or rocky.
“Consider the buyer’s agent. Is he or she a reputable agent who knows the contract process and will be reasonable to work with?” said Howey. “I've seen buyers win bidding wars without having the highest offer before, and it’s mostly because the rest of their contract is clean and strong across all these other terms.”
Selecting an agent who knows how to build a professional, friendly rapport is often the secret sauce to a happy selling process and a major factor for many agents.
“Agent to agent, you need to be a good, professional communicator. Sometimes agents will relay: ‘Hey, this agent was more professional. They have more experience, just so you know,' " said agent Brandi Wolff of Guide Real Estate in Denver.
Call the lender
Your agent should always confirm the details in a contract to determine whether an offer will stand.
“Make sure your agent is contacting the buyer’s lender, if there is one, to confirm the buyers are well qualified and have documentation to support that and that the lender is also qualified to meet all the dates and deadlines in the offer to ensure a successful on-time closing,” said Howey.
Proof of income should be required for all-cash buyers. Reviewing how a home will be purchased helps you see which offer is most likely to get to closing.
Understand what buyers may negotiate
Limiting inspections
To sweeten an offer, a buyer may agree to limit the inspection. This means that once you accept the offer, the buyer agrees to take responsibility for certain needed repairs instead of requesting you, the seller, to make those fixes first.
The exact details for what items they’ll pay for and what they won’t depend on the buyer and the offer.
“You’ll put a price on general things, like saying, ‘I won’t object to anything that is less than $5,000 to fix an individual item.’ Or $3,000 or $1,000, whatever the buyer decides is at their comfort level,” said Wolff.
Many agents advise buyers not to waive an inspection altogether. Some say it’s unethical to do so. Do not expect a buyer to include this in an offer.
Escalation clause
To protect themselves and their chances of securing a home, buyers may want an escalation clause. This means they will pay up to a certain amount more than their initial offer if a higher offer is made.
For example, if an offer is $600,000, an escalation clause may say the buyer will raise the offer incrementally up to $625,000 to top the other bids.
“There’s a big dispute between agents over whether escalation clauses are effective in negotiations,” said agent Colleen Covell of milehimodern in Denver. “I never use escalation clauses. I think they’re a bad negotiating tactic for the buyer because you have to reveal your hand.”
Appraisal gap coverage
Most mortgage lenders require an appraisal to ensure the amount they lend is appropriate for the home. Sometimes, the offer and the loan amount do not match, forcing buyers to walk away from a house.
“During the pandemic, when houses were appreciating 6% per month, if you have a buyer with a loan and the bank requires an appraisal, the appraiser is going to pull recent sales, but appraisers couldn’t keep up,” Covell said. “If the appraisal comes in low, it means the bank won’t lend the full amount, so the buyer would say, ‘OK, if my appraisal comes in low, we’ll bring the cash to the closing table to make up the difference.’”
This strengthens an offer because if that appraisal difference occurs, you can feel more secure knowing the buyer has agreed to pay cash to make up the gap.
Other offer add-ons
Buyers can also agree to pay for fees that sellers typically cover, such as title insurance, said Covell.
Ultimately, sellers have the easier side of navigating multiple offers. Be prepared to ask for what you need from a buyer and connect with your agent to ensure you both work toward the same goal.
Cash isn’t always king. There aren't always monetary benefits to certain offer items, but they can make the process smoother and more to your benefit.