Silicon Valley home buyers can have vastly different reasons for getting their offers rejected.
- For many, the challenge is having a small down payment.
- Others are very indecisive (and can’t decide fast enough, or cannot really commit enough to write a strong enough offer).
- Some may have unrealistic expectations.
- Some pride themselves on “being conservative” and routinely under price their offers.
Below we’ll go over the main issues, what you can learn from losing, and finally, a strategy to pull you out of multiple offers.
Small down payments and the competitive disadvantage
Having a less than 20% down payment may get an offer eliminated off the bat when there are multiple bids. The reasoning has to do with confidence that the bank will fund the loan and not get cold feet. The larger the down, the more secure the loan appears. When there’s more than 20% down available, the buyer appears more able to manage an appraisal shortfall, too.
FHA home buyers have the biggest challenge, for reasons explained previously. Those with 20% down payment have a really reasonable loan situation, but the trouble is that many other competitors do, too. With rising prices, appraisals are often a problem – and 20% down usually won’t solve it. So the more cash, the better, and cash is still king.
All cash offers
Having 30% or more will usually overcome appraisal hurdles. But those ubiquitous “all cash offers”, which comprise about 15% of all Santa Clara County home sales right now, will usually trump any other bid IF the price is attractive. Don’t be discouraged, though, as sometimes the all cash offers are the lowest offers with multiple bid situations in the San Jose area.
If you lose out in multiple offers for any other reason besides the down payment
Lots of times, you can learn what went wrong when you lose out in multiple offers if your agent will take the time to phone or email the listing agent to see where your offer stood relative to others.
The listing agent may not tell you the final sale price, but there’s a lot that can be shared. For example, you might hear that:
- Most of the offers had very short contingencies or none at all (so 17 days for inspection, loan and appraisal would eliminate your offer).
- lesson learned: long contingencies will lessen the odds of your offer being accepted, and in multiple offers may quickly get you eliminated entirely
- If the seller was pricing the home competitively, or even below market rate by a good margin, and you didn’t understand that it would get bid up, you may come in low. It’s important to check the sales and to understand the trajectory of the market. The listing agent may later say “yes, we priced it low”. Some will volunteer this before offers are even reviewed. It may help for the buyer’s agent to ask if there’s any expectation on the pricing.
- There were X number of offers and yours was # Y (example 4th out of 8 for price or terms)
- lesson learned: your price wasn’t high enough (if you write 5 offers and this happens each time, you will learn that you habitually underbid).
- Your offer was great, but it was incomplete – maybe you didn’t want to provide your proof of funds or sign the disclosure package. That may cause the seller or listing agent to lose trust in your and your motivation, and it may cause you to lose out on multiple offers.
- lesson learned: you need to go the extra mile to win out in multiples (sign the disclosures, write the letter, provide proof of funds etc.)
- Perhaps you wrote the offer on a PRDS contract and didn’t make it “As Is” or you used the CAR contract but asked for a pest clearance…and none of your competitors did! (Most of the time, with multiple offers the sale will be as is.)
- lesson learned: perhaps one contract or the other is preferred by the seller or their agent – it’s important to find out upfront what the seller or listing agent wants.
If you don’t ask, or rather if your agent does not ask on your behalf, you cannot learn why you lose out in multiple offers. Remember, information is power!
A strategy to avoid multiples
A great strategy is to pick homes that have been on the market for 3 weeks or more, as usually those will not have multiple offers and a small down payment will seldom be an issue for sellers at this point. It is much easier to make competitive home offer when the competition is low. Step one: don’t go after the perfect house that’s only been on the market a few days.
The homes that don’t sell right away may be overpriced, or they may have an issue. Some issues can be fixed (an ugly house doesn’t need to stay ugly forever), and some cannot (that high voltage power line is probably not going anywhere, nor is that freeway).
The homes that tend to get tons of offers are the ones with no location defects and no condition defects – they are remodeled and in a great place. What about buying a home in a great place that you can fix over time? You can buy it for less now, remodel to your own taste when the budget permits, and gain “sweat equity” in the process.
Just remember: you can fix ugly!
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