Ask real estate agent Marissa Manos if she has had any experience with multiple offers and she just laughs–nervously. During the heady days of real estate in the 1980s, Manos, a Baird & Warner agent at its City North office, once found herself sitting down at a table with eight other agents, all clutching purchase offers on the same property.
Although the real estate market has cooled since then, it doesn’t take eight other offers to increase the stress of buying a home; one will do the job nicely.
The last thing that buyers, waiting anxiously to learn the fate of their bid, want to hear is that another offer has come in. Does it mean they should just walk away from the deal, or can they hope to survive a possible bidding war with both their dream of homeownership and their dignity intact?
These were among the questions put to the real estate agents who contributed to our guide to shopping for a home, which appeared in Your Place four consecutive Fridays beginning Feb. 9. But these agents and others who were interviewed agree that it’s a topic relevant to all home buyers, not just first-timers. This situation can occur any time a purchase offer has been made.
Whether you should put up a fight or walk away, the professionals say, depends upon a number of criteria, such as how tight your budget is, how long you intend to own the home and, of course, if it’s a place worth fighting for.
If you really want the property, agents advise giving it your best shot. In a multiple-bid situation, they stress, you usually only get one chance. They also suggest other ways to make your offer as attractive as possible, such as addressing the mortgage contingency (the stipulation that you can obtain a loan at a satisfactory rate), accepting the seller’s closing date and increasing the amount of earnest money you place in escrow.
According to Anne Ferri, an agent with F.C. Pilgrim in Oak Park, buyers should consider why others are interested in the property before deciding to compete in a multiple-bid situation. Ferri says there could be several reasons: It might be underpriced; it might be “special,” such as a house designed by a well-known architect; or maybe it’s the only house in the area for sale near $200,000. “It might be that there’s a shortage on the market at that moment in a particular price range,” Ferri points out. “In that situation, buyers have to look at the comps (the comparative market analysis agents can provide) to determine what the property’s worth.
“They have to consider, `Is this a long-term move for me? Am I planning to stay in this house for 10 years, or am I in a situation where I might get transferred within two years? If I pay list price or close to it right now, is the market going to be different two years down the road? Might there be a surplus of homes in this price range at that time?’ “
Carol Buchen, who works in partnership with her husband, Jim, for Century 21 Anchor Inc. in Arlington Heights, agrees that the scarcity of homes in a particular price range increases competition among buyers, but for her a bargain price is still the primary reason for multiple offers. “If the house is priced under market and in excellent condition, it’s likely to catch the eye of more than one buyer.”
Sometimes, Ferri points out, the fact that others are interested in the same property makes her clients want it even more. “They lose some rationality,” she says. But she cautions that for some buyers it’s best to walk away from a fight. “If you have a price range that you can afford, it’s ridiculous to get into a bidding war–the hassle, the headache and also the disappointment if you’re going to have to push (the price) up higher than you can comfortably afford to go.”
As Merle Kirsner-Styer, an agent with Kahn Realty in Highland Park, put it, “Buyers should never put themselves in a position where they won’t be able to afford to go to McDonald’s for dinner after they’ve bought the house.”
Manos doesn’t think that has to happen. She encourages buyers not to walk away from a fight, just to maintain their distance: “Why put yourself in the position of losing without playing? Set the value in your mind. If you get it for that–great. Just don’t get caught up in playing a game where you have to win.”
How do you decide what to offer? As Manos says, “It’s only worth what it’s worth to you.” But how do you determine much that is? Ferri offers this advice. “Before you get into a bidding war, it’s crucial to have your agent show you as much hard data as is available. Your agent should be able to say, `These are what the comps are. This is what similar houses have sold for in the last six months.’ “
Kirsner-Styer has a different approach: “If I were to tell you tomorrow that the house sold to these other people for $350,000, and you say, `I would have never paid that,’ then I say OK, it sold for $340,000. `I’d never have paid that,’ you say. OK, $335,000. `Well,’ you say, `I might have paid that.’ That’s how you determine the amount. Somewhere in there the house loses its value to your pocketbook. Buyers think, `If that’s what that house cost, I don’t want it. But if someone else got it for what I would have paid, that’s a different story.’ “
For Jim Buchen, Carol’s partner, a buyer’s best offer is “as high as he or she would have been willing to go in negotiating.” Buchen notes, “The seller is going to pick the best offer, which is not necessarily the highest one. Sometimes there are other factors, such as if one buyer has a contingency (a condition that has to be met) and one doesn’t, or if one buyer is pre-approved for his loan and the other hasn’t spoken to a lender yet.”
The agents agree that buyers who had been pre-approved for a mortgage are in a much stronger position in situations where there is competition. For the Buchens, it means their buyers can provide a commitment letter from a lender along with their offer, making them, in Jim’s words, “essentially cash buyers.”
For both Kirsner-Styer and Ferri, it means that, if necessary, buyers could even consider waiving the mortgage contingency. “You want to make the offer as clean as possible so the seller is comfortable accepting it,” says Kirsner-Styer. Ferri warns that there is risk involved in waiving the contingency: “Buyers are taking the risk that they might overpay for the property, because if it doesn’t appraise out when they go for the mortgage, they no longer have the option of going back to the seller to renegotiate. They might have to make up the difference between what the bank will lend and the purchase price out of pocket. But if buyers do their homework and look at the comps, then they should know they’re not overpaying.”
There are several other ways buyers can make their offers more attractive. For starters, says Carol Buchen, “Don’t ask for anything other than what the sellers say they are leaving.” She adds, “It’s a benefit if buyers can be flexible with their schedule. The seller may have a different time frame. A normal closing date is 60 days, but the seller may have to be out in 30 days or may want 90 days.”
Some of the agents also recommend increasing the earnest money put into escrow as a show of good faith. They point out that sellers are sometimes swayed by seeing a larger amount up front.
Buyers competing in a multiple bid have to realize that the competition is not necessarily a fair one. It’s true that the best offer usually wins, but what constitutes the best offer is only known to the seller. Consider the case of a Chicago couple who had their offer chosen, not because it was the highest, but because they agreed to take the owner’s dog in the bargain.
For those whose offers aren’t accepted, Manos offers this consolation: “My mother, a 78-year-old real estate agent, gave me this advice when my husband and I lost the first house that we tried to buy: `Don’t worry,’ she said. `It’ll come back to apologize.’ What she meant is that if it doesn’t work out, you’ll find something better. And we did.”
