Can home buyers and real estate investors make an offer on more than one home at a time? More importantly, how should this particular situation be approached?
With the competition for homes heating up and buying season inching closer, more home buyers are certainly interested in hedging their bets. By simultaneously making offers on multiple properties, prospective owners increase the likelihood of entertaining a purchase. This is particularly true in areas like San Diego County, as some listings have reportedly received hundreds of bids. Increased competition may be directly correlated to multiple purchase offers. At the very least, individuals making offers on more than one home are competing with themselves.
The same can be said about real estate investors. These individuals are entirely dependent on volume. While the occasional home run will result in great short term profits, it is volume that will keep someone in business. Serious investors that aim to flip 5, 10 or even 30 properties a month need to purchase as many houses as they can. The nature of real estate investing is a numbers game. The more deals you are able to acquire, the more potential you have to make profits. Having said that, it should be no surprise that investors are increasing competition by making multiple purchase offers.
The average buyer and investor can certainly throw out as many offers as they like. Realtors may say you can’t, but you can do it. However, what happens when more than one of these offers is accepted? It is not unheard of for a prospective buyer to have all of their offers accepted, only to find out they don’t have enough funds to follow through with each deal.
So-called ‘smart’ real estate investors may only entertain offer contracts with a variety of contingencies in which they may use to back out of a deal at a later date. This method is often used when the respective buyer has more offers accepted than anticipated or they can not afford every property they made an offer on. However, while completely legal, this method needs to be approached carefully. There certainly needs to be some degree of etiquette exercised. If the shoe was on the other foot, most wouldn’t appreciate their property being tied up by buyers that weren’t serious, especially if they were in a distressed situation.
Seeing as how real estate is a people business, there is no reason to muddy the waters or burn any bridges unnecessarily. Accordingly, backing out of potential deals will only earn you a bad reputation. This will not only impact your ability to buy and sell more real estate, but could result in severe consequences for yourself and the community. Use contingencies whenever possible and don’t be afraid to pull out when the situation calls for it, but do not make a habit out of it.
The good news for real estate investors is that they can and should be making multiple offers on a daily basis. Those that want to be closing on at least one deal a day may need to be making 5 or more offers each day. However, if they are seeing a large portion of their offers being accepted, they may be offering too much. Subsequently, if you are getting incredible deals on properties, it probably won’t matter much if you are short on liquidity. There are more and more hard money and transactional lenders willing to put their money to work. At the right prices, thousands of other investors will be willing to take the contracts off your hands.
For those second guessing the concept of multiple purchase offers, consider making offers only good for 24 hours. You may even want to consider using ‘letters of interest’ to open negotiations, or just close deals on the spot.
