Receiving multiple offers? How to avoid leaving money on the table

This article is reprinted from Wine Country Real Estate, a special advertising section of The Press Democrat.

Last year at this time I wrote a column on sellers receiving multiple offers, I said we were seeing 'not 10, 15, or 20 [offers] from when the market was super wacky but more tempered, 3, 5, 7 offers.' Why are we seeing multiple offers? Let's consider the current real estate marketplace in Sonoma County and what is driving the demand.

Our sales county-wide saw the worst January in 6 years. We sold only 224 'detached' single family homes. One can argue this weak number is due to the lack of inventory. January of 2013 we had 1166 'Active' properties on the market—today? 842 or a 28% decline. Scarcity of homes, historic low interest rates and big demand equal multiple offers. Our month's supply of inventory has dropped from 2.4 months to 1.5 months, while a normal supply would be 4 to 5 months. A very tight market—hence multiple offers.

Savvy Realtors know this. They study existing pricing of the other active listings and comparable sales. Considering this data, we have an 87% absorption rate, which means you have about an 8 in 10 chance at selling your home when it hits the market. These are great odds. (Three years ago, sellers had a 1 in 5 chance.)

In the hot market we experienced in 2012 and part of 2013, properties sold way over asking and drove appreciation. In that 'go-go' market, a seller taking the 'first' offer left BIG bucks on the table. The seller would accept the first offer only to find higher offers in the wings. Sellers sought comfort in the knowledge, 'I got my price,' but at what cost? Luckily we're not back to those hyper competitive days, however, the sheer scarcity of houses is driving the market. When a well-priced, impeccably presented home hits the market it can and will generate multiple offers.

Realtors have distinct schools of thought when dealing with multiple offers. Scenario #1 is to review all offers 'as they come.' First come, first served, with no date set for offers. This can get somewhat hectic and confusing. A seller can be negotiating with one offer but hear of others coming in. What to do? Stall? This method creates a footrace to get an offer presented. Buyers have little or no time to really think the offer over and feel pressured and may back out or rescind their offer. You may take a great offer only to find that another buyer is offering big bucks over offer number one.

As a result, many Realtors prefer scenario #2: set a date in the near future from the list date (5-10 days out) in which to review all offers with the seller and seller's agent. No foot race, no hectic stampede. The listing agent will set a date in the future and adhere to that schedule. This is very important as Realtors will be scheduling their buyers to view the property and discuss offer price with the review date in mind. Accepting an offer prior to this date is not fair to the agents and creates confusion and animosity. However, this is the seller's choice.

Once you've decided to be that hot, multiple-offer-generating listing you may wish to take this strategy. Your Realtor will place the property on the market stating in the confidential remarks something along the lines of, 'All offers due 5 days from list date by 5:00pm. Offers to be reviewed by seller at this time.' The listing agent may ask that all offers be emailed or faxed to the listing agent. The listing agent will present them without the Buyer's agent present. This is the sellers call—Not the listing agent. This needs to be communicated to the other Realtors. Here's what might happen;

Some buyers will state, 'I don't want to be in a bidding war.' These folks will not present an offer.

A buyer's agent may insist on presenting his/her offer to the seller directly. Once again, this is for the seller to decide. (This could happen in either one of our scenarios).

Buyers may overbid in order to tie-up the property. They sometimes cancel the deal after a cursory look-see or use inspection reports to knock down the price. These buyers have most likely been burned in the past by being overbid themselves.

Buyers may offer way too much and get 'Buyer's remorse' and cancel after acceptance.

You receive multiple and strong offers.

If you are considering this strategy, here are your options. If you have strong, multiple attractive offers you can elect to:

Accept the strongest off of the lot.

Send out one counter-offer to the best offer clarifying details about the offer.

Send out a 'Highest and Best' multiple counter-offer to those you feel have the strongest interest. If one or more of the buyers agree to your counter offer, the offer you then choose will need your 'counter-signature' to be valid, this way you won't be risking selling the same property to three buyers. You set a date in the near future when they are due back. Again, this avoids the foot-race, eliminating the pressure packed decision-making.

Scenario #2 can generate the highest price for your property. Buyers can think about their offer for days before it is presented. They can analyze the property in advance of presentation. They may be able to 'hone' their offer and eliminate some contingencies over this time. This equates to a 'cleaner' offer for you and usually for more money than list.

Whatever strategy you are considering, your Realtor can best advise you on which scenario will work for your house. Accepting multiple offers may not be for all properties but more and more we are seeing multiple offers throughout the pricing segments. Remember that to be a successful 'Multiple-Offer' property, make sure your property has a price, uses stunning staging, is impeccably brought to market, and is exposed to the largest audience.