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Step 6: Negotiate After a written offer has been submitted, the process will move forward differently depending on the circumstances surrounding the existence (or not) of other offers.
No Other Offers
If yours is the only offer on the table, the seller has the option to reject it outright (uncommon), accept it outright (again, uncommon), or reject it and make a counteroffer. It's likely that unless you've made a full-price offer at very agreeable terms, the seller will counter you.
When a counteroffer is made, the original offer is rejected, and it's important to understand that the verbal negotiations that follow are NON-BINDING. If another offer comes in while you are in the middle of verbal negotiations, the seller has the right to negotiate and even accept it. There is no contract until both parties (sellers and buyers) have signed off on and delivered an offer that reflects mutually agreeable terms. Clearly, timing is everything in the negotiation phase!
Multiple Offers
When there are competing buyers for a property, we know it's a desirable property that is both priced and marketed well. Similarly, when a property receives an offer after a short market time, there is some expectation that that property is desirable. The longer a property is on the market, the less likely it is to receive multiple offers (though it does happen).
When more than one offer has been submitted on a property, you are in competition with other buyers not just for the property, but also for the opportunity to negotiate for the property. This seems a fine distinction, but it's important to understand that sellers, not agents, decide which offers they wish to work with and how they will approach the negotiations. Beware: because negotiations are typically verbal (and therefore, not binding), sellers may and will often choose to negotiate more than one offer until the price and terms are satisfactory.
Because the listing agent's job is to secure the highest possible price for the seller on the most attractive terms, a good listing agent will actively market that a property has received an offer. Usually, this includes contacting agents for everyone who has seen the property more than once. An interesting phenomenon whereby properties with existing offers seems more valuable to other buyers may well prompt a competing offer. While listing agents cannot discuss the specifics of any existing offers, they will market it positively to maximize the quality of the competing buyers' bid and/or wrangle for extra time to allow any new offers to come in.
Can you trust a listing agent who says there's another offer competing with yours? While they must deal fairly with everyone, the listing agent's duty is to protect the interests of their seller. A straightforward question should generate a straightforward response. However, a savvy listing agent may well hedge the question rather than admitting that there are no other offers on the table. When there's any ambiguity, I will use my experience and instinct to be honest with you if I suspect that other offers do or do not exist.
Multiple offers are presented to sellers in the order in which they come in, by law, and that includes verbal offers. Do not underestimate the value of being the first to submit an offer: it indicates seriousness, motivation, and organization! Sellers and their agents do generally give some extra consideration to the buyer who gets their offer together before anyone else, although the strength of your offer lies within the terms--not in the timing.
When all the offers have been presented, the sellers may do one of the following:
1. Pick the "best" offer and negotiate it. If this fails, they can move on to the second best offer, etc. Often, though, negotiations take so long that the second offerors may well have withdrawn at that point, so this tactic can be risky.
2. Request a "highest and best" from some or all of the offerors. In this case, the seller wants to see the best offer from all the buyers. You basically have one shot at winning the bid, so if you really want the property, this is where you'll make your best offer. It is not uncommon, in these situations, for offers to exceed asking price.
3. Reject all offers. This is very uncommon.
It is important to realize that the seller has no obligation to negotiate, or even respond to, any of the offers. If and how they choose to do so is entirely up to them (assuming no Fair Housing violations are being made) and outside the purview of their agent.
Winning the Multiple Bid
To win in a multiple offer situation, you will probably need to outdo your competition in price, terms or both. When I speak with the listing agent before writing an offer with a client to determine if there are other offers on the table and try to determine what terms would be most attractive to the sellers. If there are other offers, or if I suspect there may soon be, I will usually counsel my buyers to start negotiations at a price somewhat higher and terms somewhat better than they might have in a non-competitive situation. Our goal is to capture the sellers' attention and keep it: with some basic agent-to-agent detective work, we help our buyers write attenion-holding offers.
Avoiding Multiple Bids
To protect my buyers, I usually suggest that we place an aggressive but reasonable expiration on the offer itself. Depending on the circumstances, I might suggest one hour to one week. That way, if my buyers' offer is first to the table, the listing agent has only so much time to solicit other offers before they simply have to negotiate ours.
Note: Expirations can be extended by the buyers very easily, in the cases where negotiations take longer than expected.
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