The Austin housing market is, in a word, insane.
There are just more people wanting to buy a house than available homes on the market and it is driving up prices in most parts of our market. As a result, it’s really common to get involved in a bidding war, and get pressure from the listing agent to submit your “highest and best.”
Every offer I have written since the start of the year was a multiple-offer situation, from a $156,000 condo to a $875,000 house. I wanted to share with you some tips for how to stand out in a multiple-offer situation, since I’ve been on both sides of this situation. It’s not always about submitting the highest price, although that is a big consideration.
So here are the top things I would look at in a multiple-offer situation:
Increase your option fee and earnest moneyIn Texas, we have this thing called an option period, a period of time when a buyer can get the house inspected and do their due diligence. If they decide they no longer want to buy the house during this period, then they can get out of the contract. The buyer doesn’t even really need a reason.
A common option period timeframe in our market is seven days, but the time period is negotiable between buyer and seller.
In exchange for the ability to have the house pulled off the market while a buyer does due diligence, the buyer offers the seller an “option fee” check. This amount of money is negotiable. If the buyer backs out of the deal, the seller keeps the option fee. If the buyer goes through with it, the option fee becomes part of the buyer’s down payment.
I like to suggest my buyers in multiple-offer situations consider writing higher option fees because it gets across how serious you are about the house, and gives them adequate compensation if you back out.
So what’s a reasonable amount? It depends on the buyer, their risk tolerance, and how much money they have to play with. I usually recommend starting at $250 and would encourage even more if the buyer is open to it. What’s $500 if it means you get the house?
The earnest money check is totally separate from the option fee and is like your deposit. It is typically 1 percent of the purchase price. If I’m working with a client and there are multiple offers, I will suggest offering more in earnest money, such as 2 or even 3 percent. (Obviously this only works with buyers who have access to their down payment money.)
Your earnest money check is written out to the title company and cashed immediately. But the big difference is that if you back out of the contract during the option period, you get all of your earnest money back. So why is it helpful to offer a bigger amount? I think it signals to the seller your commitment and that you have access to cash.
Waive the appraisal contingency
If you’re not buying in cash, there is usually an appraisal done on the property ordered by the lender. But not always! Sometimes if you’re putting a lot of money down, the lender will waive the appraisal.
But let’s assume there is an appraisal. In Texas, real estate agents have an optional new form they can use that gives buyers and sellers some options on how to deal with an appraisal that comes in low. This form is not required, but in a multiple-offer situation it can give you an edge.
There is a box you can check on this form that tells the seller how much you are willing to pay to make up the difference if the appraisal comes in low. It’s a way of telling the sellers that if they pick you, they will have less to worry about in terms of the appraisal because you’re willing to make up some of that difference.
Getting pre-approved and not pre-qualified
Obviously if you’re paying cash, this is not relevant to you. But most buyers are working with a lender. I wrote a whole blog on the difference between pre-qualification and pre-approval, and you should read it!
If you get pre-approved, it means you have been through underwriting and don’t need to ask the seller for a certain amount of time for financing approval. So basically you’re saying to the seller that there is nothing that would prevent your lender from saying “yes” to you – it’s almost as good as a cash offer. But not all lenders do full pre-approvals without an address. I keep a list of lenders who are able to do this, so ask me or your Realtor.
Write a love letter
I’m not the biggest fan of these letters. I think it encourages sellers to pick people for emotional and not logical reasons.
But these letters work.
I’ve seen sellers time and again lean toward the person who writes the best letter. The good news for my clients is that I’m a former newspaper reporter and know how to write a persuasive letter. I have developed some “love letter” templates for clients. One tip: it’s not always about gushing about your love for the house; you also want to get across your history as a homeowner (if there is one) and your attitude about inspections.
That said, I have won in multiple offer situations before without the love letter. It’s not a must, but it can make the difference sometimes.
Don’t lowball. Really offer your best price
Austin is such a competitive market that most homes are selling very close to list price, or even above. This isn’t the time to play games on price. Most offers don’t get a counter – you get one shot to get it right.
My advice on price is this: you need to think long and hard about the highest price you would feel comfortable paying, being mindful of course of what the data shows on recent sales in the neighborhood.
And if you’re worried about paying too much and have a lender, there is always the appraisal to protect you from over-paying. If you haven’t included that form I wrote about earlier, you can re-negotiate the price if the appraisal comes in low.
Lilly Rockwell is a real estate agent in Austin, TX and a former journalist. She can be reached at firstname.lastname@example.org or 512.413.1975.