When the real estate market heats up, and you have competing buyers bidding against one another on the same property, the buyers will find themselves in what is called a “multiple offer” situation. Multiple offers in real estate transactions create a very complicated scenario for both the seller and the buyer to work through. While it sounds great at first for a seller, receiving multiple offers presents a very tricky and complex situation. The seller should be advised to not simply look only at the highest price being offered. There are many factors in a offer to consider. Sometimes the highest price may not be the best offer for a seller to go with. The seller will be carefully evaluating all offers presented, so from the buyer’s perspective, the person who submits the best offer will most likely win the accepted contract to purchase the property.
When a seller receives more than one offer on their property listed for sale, they typically will have three choices to decide on.
1 – The seller may accept or counter one of the offers and reject the others. In this scenario, even with multiple offers presented, the seller may decide to go with “a bird in hand” and choose to accept one of the offers, or may counter offer to only one buyer. For buyers who have submitted a strong offer right from the start, they may win the attention of the seller who may disregard the other offers that may have been weak. In a busy, or hot real estate market it can be quite important as a buyer to submit your best foot forward with a strong offer right at the start. With multiple buyers out there, you may not get the common second chance to re-submit, or receive a counter-offer from the seller.
2 – The second option a seller may choose is to submit multiple counter offers back to the multiple buyers. These can be the same terms, or each can be different based on each buyers original offer. This can be tricky as there are so many terms to weigh with each buyer. Commonly the seller choosing this route might submit the same terms to each buyer to see who is willing to match their desired terms. It can be a risky approach, but it simply states what the seller wants, and what they are willing to accept. When a seller chooses this route, there will typically be language disclosing to all buyers that they are in a competing multiple offer situation and even if multiple buyers accept the sellers terms, that the seller reserves the right to make the final determination of which contract and buyer the seller is ultimately going to work with. As a buyer, this can be somewhat frustrating, especially if you are one of a couple buyers to accept the seller’s terms only to find out the seller chose another buyer.
3 – The most common choice a seller makes in multiple offers is to provide all buyers an equal opportunity to present their “highest and best” offer. This is typically seen as the most fair solution for all involved, but it can be risky for the seller. The buyers may view this scenario similar to an auction and may decide to not pursue the property as they would fear overpaying. When a real estate market is just starting to heat up, the buyers often feel this way. Once a real estate market is quite active, and known to be so, buyers seem to be more ready to be involved in this situation. For this scenario, the seller will provide to all buyers a notice of multiple offers. This written notice, usually in an addendum, will instruct all buyers that they will have until “x” date to resubmit their highest and best. This also allows a window for other buyers to also enter the negotiations. As a buyer, you can resubmit an addendum upping your offer, simplifying terms or removing contingencies. The buyer also can simply state they are keeping their current offer in play and not changing their price or terms. If the buyer does not want to be involved in a “bidding war”, they can elect to withdraw their offer which leaves it to the others.
Although those three options simplify what might be the route taken, there can be more complex scenarios that may evolve during the negotiations. It is becoming more common for a seller to shop an offer around with other buyers, who may move up to beat out the other offer. Although a risky endeavour not typically recommended, it can be used effectively in the right situation and may get the best deal for the seller. The realtors involved must all act ethically, and honestly, but they each represent their client and no one else. Their job is to protect the best interests of their client. They have a fiduciary responsibility to their client and must do what is best for their client, so long as they are honest and ethical and within the law.
As the losing buyer, this may be frustrating, and may appear to be unethical and dishonest. Most people do not realize that the seller reserves the right to deal with the multiple offers in any manner the seller feels appropriate. It is important to understand the seller must choose what is the best route or safest route for them. What you as a buyer may view as fair to you, may not seem so fair to the seller.
As a buyer, if you find yourself in multiple offer situation, you must realize this is not the time to test the water or play games. The best advice is to go in with the best offer you are willing to do. Decide on a price and terms whereas if you win the bid, you will be happy about it. And if you lose the bid, you will be OK that someone outbid you, and won the property. Aside form that, there is little you can control. If you get the property, congrats on a job well done. If you don’t, do not worry, as something else will come up and you’ll be much more prepared for the next opportunity that arises.
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