Multiple offers. We are seeing these situations pop up more and more often as inventory remains tight. Buyers come in droves to a Sunday open house, and a seller (or the agent) wakes up to three to four offers Monday morning. Thus:
“How do I choose the best offer in a multiple bidding situation?”
1) Be sure that you have a complete financial statement from each buyer placing an offer (especially if you are selling a co-op).
A financial statement should list all of the buyer’s assets—cash, stocks, bonds, real estate owned, retirement funds, automobiles, and so on—as well as all of the buyer’s liabilities.
Annual income should be divulged with specifics as they pertain to base salary, bonus pay, and any other sources of income. Get a good sense of your purchaser’s job history, position, and length of employment.
2) Calculate each buyer’s monthly debt payments (again, especially for a co-op).
Be sure to take the projected carrying costs for the apartment into account (mortgage + maintenance). Determine what each buyer’s debt to income ratio is going to be after the apartment purchase.
Rank the purchasers from lowest debt to income to highest. This is among the most important factors in assessing who might be the best candidate to pass a co-op board.
3) Determine what each buyer’s post liquidity will be.
The post liquidity requirement for condos is far less than that of co-ops and really depends on the lender’s requirements. For co-ops: Calculate the sum of each buyer’s liquid assets (cash, stocks, bonds, and so on).
Remember that most co-op boards do not count retirement as liquidity! Now deduct the proposed down payment from the total liquid assets. This ending figure should most definitely exceed 2 years worth of mortgage and maintenance payments.
Do keep in mind that some co-ops will want more than 2 years. It simply depends on each co-op board’s requirements.
4) Require a preapproval letter.
Plain and simple—do not accept any offer without verifying that your buyer has been preapproved for a mortgage.
The letter should also indicate that the purchaser’s credit has been checked and the financial criteria has been reviewed—(employment information and income verification for the last 2 years, including pay stubs, W-2’s and tax returns, and bank and securities statements evidencing liquid assets for the down payment and closing costs.)
If any of your bids lack this document, place them at the bottom of the pile!
5) Compare contingencies.
Do any of the offers need to sell before they can purchase? Are there mortgage contingencies attached to any? Does anyone need to delay a closing for some reason, or perhaps you need someone who can close a little later than usual?
Take all of the contingencies into account and measure up which might work best for your situation.
6) Consider the purchase prices offered.
Of course, you want top dollar for your apartment. While there may be one offer that surpasses the rest, don’t forget that a qualified offer surpasses a ‘big bucks’ offer!
Best and Final
There are many ways to handle a multiple offer situation.
For a seller, getting caught up in the excitement of many bids can prove to be detrimental to the final outcome.
Stay levelheaded and really focus on the differences between each purchaser. If you have many qualified buyers in the bidding group, it may bode well for a “best and final” situation wherein you ask for all final offers by a definitive deadline.
If there are only one or two who qualify, it might behoove you to negotiate with only those select buyers. Keep in mind that creating a bidding frenzy (by calling for ‘best bids’) can serve to turn off some buyers.
Multiple offer situations certainly require a knowledgeable, delicate hand.
Brad Malow is the Founder of BuyingNYC.com and an agent with Rutenberg Realty. He has been helping buyers and sellers navigate NYC’s complex real estate market for over 10 years. Visit the BuyingNYC Blog for more advice or contact Brad at [email protected].
