What a difference three years makes. In July 2009, the Charlotte area (defined as Mecklenburg counties and the surrounding counties) had a 14.7 month supply of homes. That means that there was so much inventory and sales were so lethargic, that it took over a year to sell a home. For homes priced $299,000 and above, there was a 27.4 month supply of homes on the market. That’s more than 2 1/4 years of inventory! The thought of a multiple offer situation on anything but a bank owned sale was simply laughable.
Fast-forward to today where in the Charlotte area, we have a 6.2 month supply of housing and 7.9 months in the $299,000 and above category. In the city of Charlotte, the number is only 4.2 months (the lowest inventory level since December 2006 – pre-recession) and in south Charlotte neighborhoods between Park Road and Providence Road, that figure falls to 4.1. The south Charlotte neighborhood of Ballantyne area (zip 28277) is at an alarming 3.3 months supply of housing; the lowest inventory level since April 2007.
This trend isn’t just confined to south Charlotte and Ballantyne. The northeast Charlotte zip of 28269 (which includes some of the University area) has only a 3.8 month supply of housing, which is even lower than the previously lowest level which was 3.9 months in December 2009.
The result of these low levels of inventory are multiple offers and bidding wars among multiple buyers for the same house. So how do you win a multiple offer situation? Here are a few tips to improve your offer to win multiple offer situations:
Reduce the Due Diligence Period
The North Carolina Offer to Purchase and Contract has only two dates that are of any relevance in the contract: the due diligence period and the closing date. Under the due diligence period, a Buyer must complete everything necessary for them to complete the sale if they want to retain their earnest money deposit. Earnest Money is refundable during the due diligence period and becomes non-refundable after the due diligence date.
Items for a due diligence include the Buyer’s loan application, appraisal, home inspection, survey, and anything else the Buyer needs to make a decision to purchase. Frequently, Buyers will ask for a 4 week due diligence period so that they can take their time to complete their tasks. Four weeks is great for the Buyer but it keeps the house off the market for 4 weeks while the Buyer can decide not to buy and terminate without any further obligation.
The truth is that with the right lender on board, no one needs 4 weeks to complete a due diligence period. Mortgage bankers like New American Mortgage can underwrite a new contract in about 10-14 days while other big banks need 45 days at a minimum. Therefore, work with a lender who can get the mortgage completed and ready to close quickly so that you can work off of a much shorter due diligence period like 10-14 days.
Increase the Due Diligence Fee
Money talks in every real estate transaction and the due diligence fee (paid the time of an accepted contract to the Seller) can say how serious you are about purchasing the house. Earnest money is non-refundable only after the end of the due diligence period so offering large earnest money deposit and long due diligence is absolutely pointless… much like wearing suspenders and a belt. Keep in mind that if you fulfill the contract, the due diligence fee will be credited to you on the HUD-1 but if you terminate, the money is non-refundable. Consider offering the Seller in a multiple offer situation a larger due diligence fee for the time you intend to keep the home off the market.
Note: NEVER NEVER NEVER offer to pay due diligence fees on short sales or bank owned properties.
As a Seller, it is a much smarter play to accept the offer of a Buyer with a larger due diligence fee (commensurate to 1 month’s mortgage payment for the Seller) than one that offers a substantial amount over the asking price if that buyer intends to finance the purchase of the house. Unfortunately, appraisers are under a lot of scrutiny to be conservative therefore you stand a greater likelihood of the home not appraising, the buyer terminating under the due diligence period, and walking away with nothing.
Choose your Lender Wisely and Obtain a Loan Commitment
Certain mortgage banks (with emphasis on the bank) have a habit of underwriting the borrower so many times so that they decline the file at the last-minute with little to no explanation. Other lenders take less than 5 minutes to issue a pre-approve a borrower, basing their decision on a quick conversation where nothing has been verified. Regardless the transaction (and especially in a multiple offer situation), work with a lender who will verify all of the information required for the mortgage and can issue a loan commitment letter. The difference between a pre-approval letter and a full loan commitment is that nothing is verified on a pre-approval or pre-qualification letter. In a commitment, the lender or their processor had verified the borrower is employed, has funds for the down payment, has a sufficient credit score, has taken a 1003 application, and probably obtained a tax return from the borrower.
At the end of the day, it’s about selling a home and not collecting a bunch of due diligence money for a home that can’t close.
With the birth of the due-diligence based contract, there isn’t room for many contingencies in the contract. With that being said, a Buyer can offer to purchase a home contingent on the sale of their home or require third-party approval to ensure the transaction can move forth. Unless your home is already under contract, it is very difficult for a Seller to consider a contingent offer over one that doesn’t have that provision.
Offer Over Asking Price
Ignoring all of the above and simply offering over asking price is a recipe for disaster. Unfortunately, appraisal values are not rising as fast as the market may dictate in a multiple offer situation. Therefore, it is highly likely that the Buyer’s appraisal may not agree with the contract price which may result in the transaction not closing. So think smart before offering well above the asking price. If there are values to support such a price, they bid away. However, if the values do not agree, don’t expect an appraiser to bring the house in for your contract if it can’t be supported.
The North Carolina Offer to Purchase and Contract does not have an appraisal contingency while there is one in the FHA addendum (for FHA and VA borrowers), it does not require that either party agree to the lower price. Therefore, the seller can choose to not sell for the lower price, the contract is terminated, and for both Buyer and Seller it’s back to square one.