Unless you have been living under a cave for the last three years you know that we are in a hot real estate market. The low mortgage rates and access to credit has created big competition between buyers and often putting them in multiple offer situations where they are paying well above asking price. Naturally I ask, why the hell would you do something like that?
I have never brought a client into a multiple offer situation, had them waive all conditions and I sure as hell would never let them pay $20,000 over the bloody asking price. Why? because my job is to be a voice of reason and not jump on the crazy train with people. When you get into a multiple offer situation you can almost bet that you are paying over asking price on a home so avoiding them is crucial in making a sound investment. Below are the “musts” that help my client from getting into multiple offers or paying over asking price.
1. Make sure you are not in a pressure situation: If you are in a time crunch or are just dying to get a house tomorrow you will likely make mistakes. Finding a deal takes time and you need to be able to have a fair amount of it for you to get one. I always like my client to have at least 30 days that they can search for a home.
2. Have a budget and stick to it: You are not always going to get a raise or another bonus, your kids DO cost money and so does having fun. Those things are very important to overall happiness so don’t get house poor. Your quality of life is impacted by a mortgage so making sure your monthly payments are not going to put you in a financial crunch is key.
3. Be willing to walk away: People who get dupped and pay ridiculous amounts of money for a home are solely acting on impulse with a dash of ego. Guess what? you will live with that decision for 25 years so you better make sure it is a sound one. When you are making an offer, you should always be willing to walk away from it when it doesn’t work with your terms. I would rather put in 10 offers to get the right house at the right price than overpay.
4. Get Your Hands a Little Dirty: When a house is 100% and has everything you want it will typically cost more than you have. People walk away from perfectly good homes for what I consider pretty lame reasons. I look at crappy paint, horrible carpets and dated wallpaper as HUGE negotiating tools. If you can get a house for well under your budget, you will easily be able to spruce it up for much less than what you saved on asking price. That puts you into a positive equity situation from the get go.
5. Never go in an offer without conditions: This is the worst mistake that people can make and they do it all the time! plenty of banks need to do appraisals and lots of homes have issues that can cost thousands. Why would you not want to protect yourself in the event something can go wrong? Remember that a contract is a legally binding document and once you waive your conditions you are on the hook. If I know that removing a condition will advance my clients chances I will get a “pre-offer inspection”. That allows us to know about any issues a home can have before we put in an offer without an inspection clause and gives us peace of mind.
Following those rules will likely keep you from overspending on a home. I am not a pessimist, but in the event the market has a correction and home values go down you really don’t want to be in a situation where your mortgage is higher than the value of your home. Of equal importance is choosing a realtor who has the time to work with you and understands what you are looking for. Having buyers is much more time consuming than sellers and being able to see a property right when it is listed or in some cases before it is even listed can really help you to get the right house. Make sure your realtor is not working with more than 5 active buyers at a time (including you) because I can assure you that it will be very difficult for them to have enough time to make you a priority. I typically never take on more than 3 buyers to ensure I am not pulling out my hair.
I hope this article has been helpful and if you or anybody you know has any questions about multiple offers you can send me an e-mail or contact me directly and I would love to help you out. Also, if you have any suggestions for blog posts or real estate issues you would like me to write about feel free to drop me a line. Have a great day.