This article is from the June 2012 Foreclosure News Report, a monthly newsletter published by RealtyTrac. Get a free issue of this award-winning newsletter.
If you are buying real estate right now you have received the phone call from your real estate agent: “We are in a multiple offer situation.”
Most buyers are expecting a counter offer or if they are really lucky that their offer will be accepted; however when they receive the notice they are in a multiple offer situation the next question is: What do we do now?
Notice of multiple offers is also commonly referred to in the real estate industry as “Highest and Best” in which all buyers are given notice of multiple offers and given a deadline to respond with their highest and best offer. When this occurs you have three options:
1. Rescind your offer
2. Keep your current offer
3. Raise your offer
If you have ever been in a “Highest & Best” situation it feels like playing poker only you can’t see your opponents!
Rescinding your offer. Most buyers realize an economic basic: increased demand equals higher prices. Many buyers are willing to move on to the next property once they have been notified there are multiple buyers. In lieu of rescinding your offer, I typically encourage my buyers to at least keep their current offer in place.
Keeping your current offer. Many buyers are unable to increase their offer due to their inability to obtain higher financing or lack of funds. An investor may decide to keep his or her offer the same because an increased purchase price would reduce the investor’s return on investment (ROI), making the property only valuable at the current offer price.
Due to unethical practices in the industry, many buyers are very skeptical that other offers actually exist. As an REO listing agent, I assure you the majority of our properties do receive multiple offers so I caution anyone about believing there really is no other offer.
Increasing your offer. This is the trickiest option, what do you increase your offer to? The simple answer is: What is it worth to you? There are hundreds and thousands of books dedicated to determining the value of real estate but what it is worth to you is the deciding factor.
If the property will be your primary residence, your home, you may want to increase your offer and terms to ensure you win the bidding war. I recently listed a home for $50,000 and it sold for $137,000. Needless to say there were multiple offers on the house! The new home owners love the house and are very happy with the price they paid.
In an investment property situation your ROI combined with your tolerance for risk will determine the highest and best offer. Not becoming emotionally attached to an investment property can be difficult for some investors especially if you have 100-plus hours invested in due diligence.
I have had many commercial deals with hundreds of man hours and thousands of dollars spent only to end up in a multiple offer situation. I have worked with many investors and seen them pay too much for a property because they really liked it or were vested in the property is some way.
However, seasoned investors know another deal will come along and due diligence is part of investing. Remember, just because you are increasing your offer does not mean that you are not getting a great deal even in a Highest & Best situation. If your ROI is still within your tolerance threshold it is still a good deal.
Understanding your options in a multiple offer situation will give you the education and confidence to respond with the offer decision that is best for you.
Amanda Charlesworth is the broker/owner of Charlesworth Realty Group which is located in Georgia, Florida & Tennessee. Her extensive experience includes working with builders, real estate investors, commercial and REO sales. She is the 2011 past president at Georgia Real Estate Investors Association and is an active investor. Amanda is a graduate of the University of Tennessee – Chattanooga with a degree in Marketing.