Demystifying the multi-offer process for buyers and sellers
You have found your dream Eastern Suburbs’ house which ticks all the boxes – décor, budget, perfect school zones in St Heliers etc. It even has a pool which has views of Rangitoto. Your kids love the proximity to the Mission Bay beach. Everyone loves the newly opened Ben & Jerry’s ice cream shop. It’s been passed in at auction with no bids or it was listed for sale with an asking price or by negotiation.
Of course you decide to make an offer. The real estate salesperson (also colloquially known as an agent) has informed you that your offer will be looked upon favourably but he or she needs some time to present your offer. You think that sounds reasonable and agree.
Suddenly, you are told that you are in a ‘multi-offer’ situation and that there’s a ‘last minute’ offer from ‘another buyer’. You must now sign a multi-offer form and put in your best price. What exactly is going on here??? How can you win in such a multi-offer situation and beat out the other buyer without paying a bomb?
What’s a multi-offer situation and why are they common?
In general, a multi-offer situation is where there is more than one offer in writing. Processes to deal with multi-offer situations can differ between agencies, but the underlying principle behind such a situation is to provide all buyers who are interested in that property a fair opportunity to present their best offer. The obvious aim is to generate buyers’ competition (a principle which I have focused a lot on) and achieve a great price for the vendor for whom the agent represents.
Most buyers understandably hate multi-offer situations and think that agents operate unfairly and deny them of their ‘bargain’ dream home. This is because multi-offer situations (or the buying process) are stressful for the buyers and often this confusion with the process can lead to misunderstandings.
Although it may sound unfair to you as a buyer, remember that, as a vendor, you have the right to expect the agent to do his or her job well and extract the best possible price. Surely you will want the agent to do the same for you when it comes to marketing and selling your home too.
No lying about multi-offer situations by real estate agents
Although salespeople owe fiduciary duties to the vendor, they also have a duty of care to treat buyers fairly. Hence a salesperson can’t say you are in a multi-offer process if there are no other offers in writing. This applies even if they are expecting one or have verbal confirmation of an offer.
All offers should be presented fairly in the presence of an independent person. This would usually mean either the agency’s sales manager or senior salesperson. The multi-offer situation ensures everyone has an equal opportunity to be the successful buyer.
In a multi-offer situation, the seller can
- choose the offer that works best for them from a number of offers;
- negotiate with one offer to the exclusion of others without informing you;
- Reject all offers if they are all not satisfactory.
As explained above, there is absolutely nothing wrong with this as the agent owes a fiduciary duty to the seller and has the responsibility to get the seller the best outcome.
Some strategies and tips to best deal with multi-offers as a buyer to maximise your chances of succeeding
First Tip: In order to manage and protect your own expectations, always assume that you might end up in a multi-offer situation when you make any offer.
If you submit an offer before a multi-offer process starts, the salesperson must give you a chance to review your offer when the process evolves into a multi-offer situation.
Similarly, if you are told that a sale is a multi-offer process but this changes to yours being the only offer (for e.g. the withdrawal of a buyer due to a change in circumstances), you must be informed that you are no longer in a multi-offer situation. You will then be able to review your offer and submit a new one.
As a buyer in a multi-offer process, you need to put your best offer forward because you may not have another opportunity to change/increase your offer or negotiate with the seller. A best offer need not always be one with the highest price. It can be an offer with a lower price but with as few conditions as possible, or even an offer of the same price and conditions but with a higher deposit and shorter settlement date. That is not to say that you should exclude all conditions to your detriment since these conditions are meant to protect you.
Second Tip: You should check and satisfy some conditions before you make an offer.
This could include getting the LIM checked, having your solicitor’s approval and conducting building inspections. This will make your offer more attractive, especially if you were truly serious about buying the house.
However, you may feel strongly that you would rather not be in a multi-offer situation.
Third Tip: Act fast – make your offer early.
This is to prevent competition for your dream St Heliers home and make sure that your agent has ample time to arrange a meeting in order to present the offer to the vendor.
Although some buyers may wish to insert a ‘sunset clause’ (i.e. an expiry time for the offer) into their agreement, I would suggest that the easier thing to do is to let your salesperson know that you do not wish to be in a multi-offer situation. If it turns to that, you would immediately pull out.
The listing salesperson should respect your wishes and convey that to the vendor so that he/she can make his or her decision about your offer in light of that.
If you have a sunset clause, the salesperson must present the offer to the seller to consider it before it expires. However, inserting a sunset clause might put too much pressure on the vendor who might need a night or two just to think through their situation and decide whether to accept your offer. Give them the space and time to deliberate and if they decline your offer and have others come forward, then let that choice be theirs.
Fourth Tip: Work with another trusted agent to view homes and make offers.
Their guidance and experience can be invaluable when it comes to making those offers (learn why here). This can relate to price expectation and conditions to insert (obviously without being in conflict with their legal duties owed to the vendor) etc. I’ve personally helped buyers saved tens of thousands – and at zero cost to them – by negotiating on their behalf and guiding them through the process.
What happens after all offers are submitted?
In short, I go back to an earlier point about putting in your best offer if you want to be in outcomes 2, 4 and 6 as set out below.
There are 6 possible outcomes:
- The vendor rejects all offers. You can try again.
- The owner accepts one of the offers and it’s yours. Congratulations. Break out the champagne and the dream of sipping wine on the patio whilst glazing into the sun setting across the Eastern Bays is finally here. Time to start preparing for the move (contact me for your handy moving checklist) or putting your house on the market if you need to sell (I am happy to help achieve this within your timeframe!)
- The owner accepts one of the offers and it’s NOT yours. Unfortunately, things are just not meant to be. Don’t be disheartened and keep looking. Work with an agent who can update you on new listings which will fit your criteria. There are always other houses. You can also put a back up offer in case that offer falls through.
- The owner negotiates with one of the offers and it’s yours. Great. You are getting closer. At this stage, don’t be too stubborn. Make a reasonable increase in your offer, even if only just a small amount, unless it is of course your maximum.
- The owner negotiates with one of the offers and it’s not yours. Don’t be disheartened. There’s a chance that the other offer comes with conditions so you can still have the opportunity to put in a backup offer. Continue looking for other houses in the meantime.
- The owner rejects all offers and asks the listing salesperson to go back to all those who have offered asking them to increase their offers and resubmit to be part of a second multi-offer presentation. Now this is your one last chance to ‘win’. Similar to outcome 4, it is likely a mistake to refuse to increase your offer because you are effectively gambling that the other buyer(s) will also do the same. If you can increase your offer, you absolutely should. If you are ‘maxed out’ on the bank approval (and be aware that banks do require valuations nowadays), you can also alter your conditions such as the settlement date. Do anything to make your offer stand out.
It’s not all doom and gloom in multi offers when buying homes in Kohimarama, St Heliers, Glendowie, Mission Bay, Orakei or Remuera
Sometimes, multi-offer situations are not a bad thing. If you are making a good offer at a fair market value, then the fact that there are other offers weaker than yours will make it much easier for the vendor to accept your offer as he/she has seen the market’s response to their house and know that you are the most genuine buyer about buying their house.
Remember that a multi-offer situation will be in your favour when it comes to selling your home!
But only if you hire a great agent. The multi-offer process does a great job in protecting the value of your home during the private negotiation stage (read more about the different methods of sale here). Even if the second offer is much lower than the first, the fact that there’s a second offer will often push buyers to make their ‘best’ and highest offer.
A competent salesperson will therefore be actively sourcing buyers and generate buyers’ competition to achieve a premium price. Having a stand-out marketing strategy focusing on where 82% of the buyers are (hint: it’s online) will be critical.
Ask your agent what their online marketing strategy is (hint again: it’s not just simply putting your home up on Facebook and TradeMe) and the exact steps they take to ensure that your home is seen by the right buyers ahead of 504 homes currently on sale in the Eastern Suburbs.
This is also where great salespeople, backed by an excellent real estate agency with strong buyers’ networks and large volumes, can make a world of difference between selling at record time and not selling at all. Remember – the longer your house sits on the market, the worse the final price is likely to be.
Complaints if you are unhappy about the process
Remember – if, at any time, you feel like you are not being treated fairly in the multi-offer process, under the Real Estate Agents Act, each agency has a precsribed in-house complaints and disputes process where your complaint will be addressed by the branch manager or agency owner. However, in most situations, the anger and frustration comes from the salesperson not explaining to the buyer the entire multi-offer process such that the confusion and constant waiting, along with the likely final increase in sale price, leaves a bad impression on the buyers. This is entirely avoidable.
Hopefully, this article has benefited you when you are making your offers or when choosing your agents during the sale of your home.
All the best in the next purchase, and I look forward to hearing from you that you have successfully purchased your next home using the strategies set out here.
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(Updated December 2018) The Auckland property market can sometimes be blistering hot…
Found this post useful and have more questions?
Do not hesitate to contact me for a no-obligation discussion over coffee on your future plans to either buy or sell. I am happy to share my unique marketing strategies, even if you do not sell with me. Simply because the secret lies in the execution.