Spring has arrived, and prospective buyers are out in force throughout Silicon Valley, looking for the perfect place to call home. Springtime is typically the time of year when there are more buyers than homes for sale, and sellers can therefore expect multiple offers.
Most buyers are aware of the limited housing supply, and some buyers may feel anxious about the prospect of losing out on an opportunity to get into their desired neighborhood. Faced with these competitive market conditions, buyers may decide to submit simultaneous offers on multiple properties to increase the odds of getting an offer accepted. However, it is unclear whether buyers who take the multiple-offer gamble have fully considered the possible consequences of this approach.
Let’s assume that Buyer A is looking for a home in the Flood Park neighborhood of Menlo Park. Buyer A has made multiple, unsuccessful offers on homes in the neighborhood and grows increasingly frustrated. Buyer A checks the Menlo Park listings daily and sees two newly listed properties: Property 1 and Property 2. Both properties have similar offer deadlines. Buyer A tours both properties, and, although he likes Property A more than Property B, he submits offers on both properties. Both offers are non-contingent so that the offers are competitive with offers submitted by other buyers.
While nothing prevents a buyer from submitting multiple offers, the buyer must understand that this approach may result in two or more of the offers being accepted. Unless the buyer has the funds and the desire to close on two homes instead of one, the buyer must now somehow be extricated from a fully executed purchase agreement.
This is no simple task. The buyer’s desire to close on the preferred home does not constitute a valid basis for cancelling the purchase agreement for the second-choice home. A buyer would typically have to pay liquidated damages to the seller in order to cancel the agreement. This is a less-than-satisfactory outcome for both the buyer and the seller of the second-choice home.
So, how can buyers submit multiple offers while avoiding the outcome described above?
First, buyers should not conceal the fact that they are submitting multiple offers. Instead, the buyer should submit an offer on Property 1 with a relatively tight response time and explain the situation to the listing agent of Property 1. The buyer’s offer on Property 2 should include a one-day contingency addressing the outstanding offer on Property 1. If the buyer learns that the offer on Property 1 was not accepted, the buyer should immediately cancel that offer and remove the contingency in the offer on Property 2.
As you may have guessed, careful drafting of the offer is required. Buyers can set themselves up for success by partnering with a broker capable of customizing the terms of the offer.
It should be noted that this situation requires a strong grasp of the contractual rights and responsibilities that buyers face. Therefore, buyers should speak with an attorney, whether provided by the brokerage or retained by the buyers.
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