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 their agent) wakes up to 3-4 offers the following 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, etc... - 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-purchase 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 total liquid assets (cash, stocks, bonds, etc...). Remember that most co-op boards do not count retirement as liquidity! Now deduct the proposed downpayment from the 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 pre-approval letter. Plain and simple - do not accept any offer without verifying that your buyer has been pre-approved for a mortgage. The letter should also indicate that the purchaser's credit has been checked and their 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!
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 level-headed 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 highest" 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, and they may choose not to participate.
Multiple offer situations certainly require a knowledgeable, delicate hand.
Don't hesitate to get in touch if we can be of any assistance.