IC Elesson: What to do in a “Multiple Offer Situation”
As listed inventory throughout the U.S. continues to shrink, I’m getting this question more and more often: “What do I do when I make an offer on a property, and I’m told that we’re in a multiple offer situation and I’m asked for my highest and best offer?”
A “multiple offer” situation is exactly what it sounds like: one or more other buyers have made offers on the same property, and the seller (via the agent) is in the enviable position of being able to try to play the bidders against each other to try to get the highest possible price for the property.
In a multiple offer situation on a listed property, the seller’s agent would generally be instructed by the seller to:
- let all buyers know that there are several offers on the table without
- letting any buyers know what the other offers are.
This isn’t required procedure; the seller could simply choose to deal with one buyer and reject the other offers, but it’s the way in which the seller is likely to get the best possible price by starting a bidding war over the property.
What you choose to do at this point depends on what you did when you made the initial offer.
Was your offer at or near your maximum allowable offer for the property (please answer this question WITHOUT going back over your numbers to see if you can justify a higher value or lower repair costs!)?
If so, your response should probably be, “you have my highest and best”.
If not, you could choose to raise your offer to MAO, understanding that the risk you’re taking is that you have already put in the highest offer, and you end up paying more than you could have.
My own philosophy about multiple offer situations is this: I simply don’t play the game. My experience is that either the other buyer is a seasoned investor, in which case he’s offered about the same price I have, and there’s a 50/50 chance I’m the high offer, or that the other buyer is an idiot who’s offered so much more than I have that I’ll never be willing to beat his price. Because I’m never attached to buying any particular property, there’s no incentive for me to bid against myself.
Be aware of a few things seasoned investors know about multiple offer situations:
- It’s pretty common that the seller ends up rejecting ALL of the offers. He’s not required to accept the highest one, and if he gets several offers early on, he starts to think there’s a better buyer out there, which may or may not turn out to be true. Also, it’s often the case that the highest bidder doesn’t end up buying because the property fails inspections, or won’t appraise for the purchase price, or whatever. So FOLLOW UP and remake your offer if the property doesn’t sell.
- Price isn’t necessarily the thing that will determine who “wins”—I’ve won multiple offer situations by removing the inspection and financing contingencies.
- If you’re sitting on pins and needles over some particular multiple offer situation, you need more leads. Seriously, be careful about how much time and mental energy you put into these situations—being too attached can lead to you making a bad decision about what to pay. Better to move on and look for other deals, and to always know more are out there, than to worry about one getting away.