Every seller’s dream is to see their home be the subject of a bidding war, and in a strong market like Columbus, Ohio, it is a very real possibility. The question then becomes how to evaluate each offer and make the best choice.
Before going any further, make sure you know what your priorities are. While your first thought may be price, you may realize that the most important thing is time. A closing date that works with your schedule may allow you to move after you find a new house or get you out in time to start a new job. Maybe you are looking for as little hassle as possible, and that may simply mean going with the best offer. If price is really important, you may want to see if you can set a bidding war in motion. Knowing what you want out of the deal will give you the perspective you need when reviewing the offers.
Before even sitting down with the offers, organize the information into a spreadsheet first. Doing so helps you methodically peruse each offer and helps set an objective tone for evaluating each one. It will also make it easy to find information when discussing options with your agent.
In the left column, write the name of each buyer. Then, across the top give each of the following its own column:
- Offer price
- Amount over the asking price
- Escalation clause (Yes/No and amount)
- Inspection contingency (Yes/Waived)
- Financing contingency (Yes/Waived)
- Sale contingent on buyer selling home (Yes/No)
- All cash (Yes/No)
- Closing costs
- Closing date
- Net to seller
Your agent will help fill out the spreadsheet and evaluate the answers. For example, if a high offer is contingent on the buyer selling their house, your agent can research that market. If there is concern about financing, your agent can talk with the buyer’s lender with permission.
The highest price offer will definitely be the most eye-catching. However, keep in mind that price is not the only thing you need to consider. Review the terms of the entire contract with your agent to see what other factors are at play. If the buyer is relying heavily on financing, it may mean there will be a wait for final approval from the lender. Keep in mind, too, that the buyer may not get approved for the full amount of the bid. That may cause the offer to fail.
If the buyer offers all cash or a substantial amount of cash, that may mean they have a smaller loan. Smaller loans tend to have faster approval rates. More cash may also signal that the buyer has greater financial flexibility if a bidding war does take place.
Contingencies are part of a buyer’s offer that lets them cancel the deal if these conditions are not met. These can be anything from making sure a home passes inspection to funding approval to the appraisal staying below a certain amount.
As a seller, you want the list of contingencies to be small or even non-existent. It is not unusual for buyers to waive some of these things if they really want to purchase your home.
Examine buyer financing.
We touched earlier on this, but it bears repeating that sellers need to understand the breakdown of buyer financing. If, for example, the buyer can completely pay in cash it means there is no need to wait for lender approval and the closing process will be that much faster.
Most buyers, though, need some kind of financing. Look for buyers with a relatively low loan amount and who are pre-approved. Pre-approval signals that the buyer has already worked with a lender and is that much closer to final approval and closing. Buyers who are not pre-approved most likely need to start sorting out their financing.
Compare closing periods.
Depending on your priorities and plans, the amount of time the buyer needs or requests for closing may be pivotal in your decision-making process. If the buyer’s purchase of your home is contingent on the sale of theirs, the closing may take a month or more. That may be fine with you, but then again it may not. If the buyer can close in a few weeks, that may be a point in their favor.
Examine the extras.
Buyers in a seller’s market may offer something a little extra to sweeten the pot. They may offer to cover your closing costs or signal that they are willing to let you stay in the home rent-free after closing. The buyer may also include an escalation clause in their contract, which means that they agree to top the best offer by a certain amount.
Handling Multiple Offers
The spreadsheet is done, and you and your agent have reviewed each offer carefully. Each one has its good and bad points, but none seem exactly right. What happens now?
Generally, you have four possible courses of action.
1. Accept the best offer and reject the others.
If your highest priority is time and one offer is clear and away the best, take that one and pitch the rest. “Best offer” in this case may mean the highest price or it may mean the one with the faster closing time. This is the quickest and easiest option for moving on to getting the house under contract and heading for the closing. This is also a nice choice if you don’t fancy the drama of a bidding war.
2. Start a bidding war.
By shopping the best offer around to each of the buyers, you give the others a chance to strengthen their offer in some way or another. The top offer may still end up on top, but who knows? Another buyer may offer something – cash or another thing high on your priority list – that will make their deal too good to refuse. Be aware, though, that some buyers may be drama-adverse and simply step out of the running at this point. Your agent will help you decide if this is the right step for you, the market you are selling in, or even if the other offers are worth the effort.
3. Let everyone know there are multiple offers and give them a chance to put their absolute best deal on the table.
This is something like a soft bidding war that gets you a fresh round of offers to review without wondering who might go higher yet over time. It might also be advisable to let the highest bidder know what is happening and that you expect better offers to arrive. If the top buyer wants to settle things there and then, they can. This is an especially nice choice if none of the offers really stands out. It also lets the seller keep some control of the process, although, some buyers will take themselves out of the running here, too.
4. Counter the best offer while keeping a few in the wings.
In this option, you counter the best offer in hopes of tweaking it to get closer to the things you really want out of the deal. You ask a few of the other buyers to hold on for just a moment while you do so and reject the offers that don’t meet your needs. Your top buyer will know you have others waiting in the wings and, if things don’t work out, you have a back-up plan. This works well if you feel confident the top buyer will go for it, and if you and your agent feel certain that the others are motivated. Remember, though, that buyer offers have expiration dates, so you and your agent will need to be efficient.
Have more questions? Don’t hesitate to get in touch. Taylor Kolon, Cole Metcalf, and Galen Buchanan are happy to help you handle whatever situation arises as you find your new home.