If you're trying to sell your home, buyers should be ringing your doorbell any moment now. This is a seller's market. The National Association of Realtors' midyear forecast, which came out in mid-May, indicates that the number of sales of existing homes (that is, a house that's already been lived in) will rise 3.5 percent to 5.64 million sold this year. Next year appears promising for sellers as well. In 2018, sales of existing homes are expected to climb another 2.8 percent, to 5.8 million.
Naturally, in this favorable climate, a lot of bidding wars have reportedly been breaking out. And a bidding war is the American dream after owning your own home – having complete strangers begging you to buy your home and pay you more money than you anticipated.
But while a bidding war can be good for your bottom line, having one break out doesn't mean that you're guaranteed to sell your home. Sometimes, in this type of war, you're the one who becomes the casualty. That's why, if you start getting multiple offers, you'll want to make these three best practices part of your battle plan.
Don't automatically seize the highest offer. It's easy to be dazzled by the dollar signs being thrown at you, but it may be a mirage.
"In almost all circumstances where a seller receives multiple bids, the strongest offer is not determined by price," says Holly Gray, a real estate broker with RE/MAX Pacific Realty in Bellevue, Washington.
Sure, price is important, but Gray says you should also be thinking about factors such as the amount of earnest money that the seller is willing to pay. There also may be clauses in the contract that would typically give them an exit if they suddenly wanted to back out of buying your house for some reason.
In other words, if the highest offer is coming from someone who seems wishy-washy about buying your home, or who doesn't have approval from their bank for a loan, and there's a lower offer from someone who appears levelheaded and enthusiastic about moving in and has the financing lined up, you can probably figure out who has the better offer.
Brian Morgan, a real estate broker at Citi Habitats, a brokerage in New York City, agrees that the biggest offer may not be the best.
"Sellers get blinded by big dollars and a preapproval letter," he says. "If the loan falls through … it's back to square one."
Don't let things get too personal. This can cause you to stumble in many ways, from overpricing your house in the first place (because clearly everyone will see that this is the best house ever and worth a fortune) to getting angry when you hear a dimwitted, tasteless buyer was underwhelmed by your kitchen's remodel. But you might be surprised to know that as bidding wars have become more commonplace, there's another tripwire you should be aware of. Some homebuyers are now writing letters to the seller and enclosing photographs of their family, explaining why they would be the perfect people to live in your home. Real estate agents refer to them as "love letters."
And while that may sound endearing and exactly what you'd like to receive, if you have an emotional attachment to your home, you'd be wise to not accept those letters, says Emile L'Eplattenier, a Brooklyn-based real estate agent and a staff writer with FitSmallBusiness.com.
"Sellers need to stay objective and judge each offer on merit only. After all, this is a business transaction," he says.
But there's another reason, too, to not open these envelopes. "These letters can sometimes create concerns about federal fair housing laws," L'Eplattenier says. "For example, let's say you're considering two comparable offers and both buyers have their agents submit a love letter with a family photo. If one buyer's family happens to be black and the other white, your choice could appear discriminatory even if you don't intend it to be that way."
Don't be too greedy. This may be the biggest mistake sellers make, many real estate agents will tell you. And so will some homebuyers.
John Liston, an executive in Boston, says he bid for a home along with others at an open house. Because the bids were so close, the sellers requested a second round of offers. Liston bid again and was told he was one of two finalists.
"After upping my bid to my comfortable limit and bending on as many terms as I was capable of, the seller again came back asking for a third final offer," Liston says.
By now, Liston was tired of jumping through hoops and having to call his bank to approve a higher limit, and said he was done trying to buy the house. The other bidder did the same.
"The next day, the seller's agent called back to ask if I would still honor my bid from the second round," Liston says. "Sensing an opportunity, I told him that I was only willing to match my initial bid – 10 percent lower – and had my offer accepted."
Morgan says he sees this a lot, sellers letting their greed get the best of them. "You don't want to cause a buyer to walk away out of frustration because they are tired of playing games," he says.
If you do have multiple buyers making multiple bids, Morgan suggests giving all the parties the opportunity to present their best and final offer, "which is the absolute highest price they would be willing to pay for the home."
Not only is that fair and will shorten the selling process, Morgan says, it's the most effective way to get the highest possible price.
But there's an art to this. You don't want to accept bids too fast. Gray says that earlier this year, a house she sold in Seattle received 31 offers. She and her clients sifted through them for a week.
"Had we accepted the first offer we received, the seller would have left $150,000 on the table," Gray says.
And yet, you don't want to allow your attempts for as much money as possible to drag out the process for too long, warns Marie Phelan Gordon, a realtor with Berkshire Hathaway Fox & Roach Realtors in Wayne, Pennsylvania.
"You can frustrate the buyers and end up losing all of them," Gordon says, adding that there's a saying to keep in mind in these situations: "Pigs get fat, but hogs get slaughtered."
Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.
For the past 15 years, Williams has specialized in personal finance and small business issues. His articles on personal finance and business have appeared in CNNMoney.com, The Washington Post, Entrepreneur Magazine, Forbes.com and American Express OPEN Forum. Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America"
Born in Columbus, Ohio, Williams lives in Loveland, Ohio, with his two teenage daughters and is a graduate of Indiana University. To learn more about Geoff Williams, you can connect with him on LinkedIn or follow his Twitter page.