How to Win a Multiple Offer Situation in Chicago
Buying a home in Chicago can be tricky during the chaos of the spring real estate season. If you’re trying to buy a home during this time of year, you need to be prepared to face multiple offer situations. In a multiple offer situation, two or more buyers are making an offer on a property within a short time frame and the seller needs to choose among them. Sometimes they will give all interested parties time to submit their highest and best offer, but time is definitely of the essence and while you may think there’s more emphasis on the “highest” part of that phrase, making your offer the “best” can be the trick to winning the home of your dreams.
How to put together a winning bid
First, you want to establish a price you are comfortable with. Just because a house may be listed at a certain price, doesn’t necessarily mean the winning bid will be at that price or higher. I have had buyers in multiple offer situations where we were able to win out and still get it under list price.
You need to have a strong understanding of the available comps. From there, you can determine if you want to offer something above those. Maybe this is your dream home that you never plan to sell. Well, then you’ll want to offer accordingly, and include an appraisal gap guarantee. If you’re financing the purchase, your lender will require an appraisal to determine value, and you’ll only be able to obtain a loan based on the offer price or the appraised amount, whichever is lower. If the appraisal comes in low, the gap guarantee means you’ll bring money above the appraised amount or cover the entire difference.
For example, if the home is listed at $450,000 and you offer $460,000, but it only appraises for $445,000, you would include verbiage that says you will cover that $15,000 or at least some portion of it. If you’re looking to put 20% down, your lender will only loan 80% of the $445,000 ($356,000), and not the whole $460,000 you offered. Saying you’re willing to cover the difference will give the seller great peace of mind that you aren’t going to back out if it comes in low. It says you REALLY want the home.
Using an escalation clause rider
If you’re worried about overspending, you can include an escalation clause with your offer to purchase. An escalation clause says you will offer X amount and then are willing to go Y amount over the next highest bonafide offer up to a certain price. For example, you offer $450,000, and you add an escalation clause with your offer that says you will go $1,000 over the next highest offer up to $460,000. If someone offers $452,000, you essentially are offering $453,000 and should win out. It’s customary to then see a copy of that offer with personal info redacted, to have proof and protect yourself.
Some sellers do not like these and some agents discourage including them with your offer. If they are asking for highest and best, we know yours really is $460,000 but you are still trying to get a discount. Have your agent feel out the other and see if it’s something that would hurt you instead of help. In the end, an agent has to present any and all offers to the seller, so keep that in mind.
Including an as-is rider
A popular way to make your offer look more appealing is to include an as-is rider. This rider states that while you still will have an inspection, you won’t be asking for any credits or repairs from it. Now, if there is a major issue such as extensive mold, a broken furnace, or leaking roof, then yes, you will want to bring that up because it means walking away from the deal or having it resolved. The seller will have to disclose that issue to any new buyers anyway, and if they want to keep things moving, they will have it fixed for you as they are generally eager to close as well.
So you can see it’s not a “take the home in it’s current state no matter what” rider. It’s ensuring the seller that you won’t be nickle and dimeing them with issues in the inspection. And you very well shouldn’t with a multiple offer situation: if you even ask for something to be addressed, there’s a chance they could cancel your deal and accept another one of the other offers. It’s not worth it over small inconveniences that can be fixed for a few hundred dollars or less usually.
Talk to the seller
Not you the buyer, but have your agent talk to the seller’s agent and see what the seller wants. Mainly, what close date do they prefer? What peace of mind are they looking for? Do they want the most money? The soonest close? No contingencies? Generally it’ll be the most money and closing within 30-45 days, but they may need more time and prefer an offer that can close later than that.
Don’t be afraid to ask what they want. Most people are fairly reasonable and if you can get some info from them, it could help immensely with securing the home for you.
Yes, easier said than done for some. But if you’re on the fence over how much to put down as a down payment, do 20-30% if you can. Securing the loan is a much faster, streamlined process if you have more skin in the game in the eyes of your lender, so put down as much as you can while still accounting for closing costs and a cash cushion.
Speaking of cash, if you are in a position to put down all cash, then remember: Cash is King. Any cash deal will close faster with less to no contingencies than a financed deal. This gives you the biggest upper hand over so many other people, and you may be able to get a discount on the list price. If you’re in this position, seriously consider putting down the cash. If you really need the cash later, there are options to take equity out of the home.
In addition to the down payment, including a larger earnest money amount may help. The earnest money is good faith money, a deposit on the home while you do your due diligence. It’s used towards the down payment and closing costs when you get to the closing table, so you only risk losing it if you back out for reasons other than the contingencies written in the contract. Maybe you say you’ll give them $10,000 earnest money and if you don’t buy the home for ANY reason, they can keep it. Now that’s peace of mind.
Make it personal (in a warm-hearted way)
Every so often I have a buyer write a nice letter to the sellers to win over their heart. I’ve seen this help get thousands of dollars off of the list price, and help the buyer win a multiple offer situation. Write about how much you love their home, the location, and how you can see yourself living there. Talk about your life to that point and how you see things only getting better for you in their home. It can be the difference maker.
If you find yourself in a multiple offer situation when buying a home in Chicago, don’t get discouraged immediately. Talk to your agent and really figure out a way to win. Perhaps your agent can hand deliver the offer, everything filled out, as well as submitting it electronically. Send a gift with it. GET CREATIVE! You never know what will work.
And if you miss out, don’t lose hope. Deals fall apart for random reasons all the time. Maybe the buyer that wins the multiple offer situation turns out to be a nightmare. Or maybe they have a sudden job relocation opportunity. Never burn bridges: that goes for your agent too. I’ve had an agent chew me out for not doing a multiple offer situation. Who do you think I’m going to if the deal falls apart? Definitely not the agent who has shown hostility.
If you’re looking to buy a home in Chicago and you want me on your side, send me an email, give me a call/text (847.373.8114) and let’s see what we can find for you.