The Question We All Get Asked
Every property buyer will be asked this by a real estate agent at some stage, most likely on a regular basis: "... as it is a multiple offer situation the owner has requested all parties submit their final and best offer". It is how you answer this question that is critical.
Legitimate question or having a lend?
The first thought that goes through most people's head is 'am I really in a multiple offer situation or is the agent bluffing me into increasing my offer?'. You are right in thinking this. It has been a tactic used in the past and no doubt continues to be used. This is evidenced by the fact that there are forms and guidelines out there for agents to follow to reduce the number of unethical practices that occur. The REIQ asks member agents to use a form that the buyer completes to acknowledge they are in a multiple offer situation, but there is no law that states an agent must use this form. And what's to stop an agent from handing these forms out to every prospective buyer, regardless of whether there are any existing offers out there?
Who has the highest power?
The fact is, there is no way for you to know for sure what the situation is. Maybe you are the only offer. Maybe it is a multiple offer situation but you are the highest bidder already, yet here you are being asked to increase your bid. There is no knowing. This is why the selling agent has the most power in any property transaction. Only they know exactly what is going on and they also have the ability to persuade an owner to run with one offer over another, based on their assessment of the offers and buyers. For example, if you are 'hard-nosed' and pushy when it comes to making an offer, you may force a positive outcome for yourself, but it may also backfire and result in a situation where the agent does not like you and recommends the owner runs with an alternative offer. That is how much power they have.
Home Buyer vs Investor
To adequately address the agent's question ... "as it is a multiple offer situation the owner has requested all parties submit their final and best offer", you must first know whether you are an investor or a home buyer as the 'rules' differ for each party. If you are buying a family home to live in, then you are allowed to offer what you like for the right property. We don't recommend paying too much, but sometimes you have to in order to secure the right family home. However, a property investor should always operate with their head, not their heart. A property investor should never pay too much for a property, in fact they should always aim to buy under market value. And they should never be intimidated into paying more than their numbers suggest they should be paying.
How to answer the question
Okay, so an investor should know how much they are prepared to spend and stick to that limit. An investor's initial offer should be the lowest offer they can make whilst still believing they have a chance of buying the property. If you believe there are no other interested parties then this might be quite low, however, an investor should never get too upset if they miss out as the result of their low offer and another party coming in. Get over it and move on. However, if you believe there is a bit of interest in the deal and your numbers show the deal stacks up and is good buying at a higher price, then offer the higher price. Then when it comes to the question "as it is a multiple offer situation the owner has requested all parties submit their final and best offer", you know you can't increase because you have already made your best offer. If you choose to increase, you are only doing so because your numbers allow you to, you aren't yet at your limit, and you won't hold any regrets if you discover you have paid more than you had to. You've played the game, you got the deal and it works. Nothing wrong with that!
Just to show how the outcome can change, here are two case studies where we have been asked that dreaded question.
Example 1: Renovator House
Our offer was $462,000. The agent asked us ... "as it is a multiple offer situation the owner has requested all parties submit their final and best offer". We assessed that it was likely to be a multiple offer situation, but the asking price was $495k and the property had been on the market for nearly two months. In our opinion $462k was a good offer. We knew there was a chance someone was offering more, but our numbers capped out at $462k, so we weren't prepared to play the game. We did not increase our offer. Unfortunately we missed out and the property sold for $465,000. Not much more than we offered. However, we did discover that the offer was cash unconditional, ours was not. In hindsight would we have increased our offer? Probably not. Shame to miss out by $3k, but we couldn't match the unconditional nature of the offer anyway and we were at our limit. We moved on.
Example 2: Block of Units
In this instance we had an offer in a $1.5m. We thought we were close to getting the deal done, but then the question came... "as it is a multiple offer situation the owner has requested all parties submit their final and best offer". This came a little out of left field. We didn't believe there was any other interest at all. We thought we were close to securing the deal. We chose not to increase our offer. We received another call from the agent soon after, this time saying "the owner wants another $50k, can you increase your offer?". No mention this time of a multiple offer situation. We knew our limit so I immediately told him no, our offer stands. Further, we told the agent "as we have been asked twice to increase our offer and we have both times informed you we are at our limit, it appears we are now in a situation where the owner is no longer considering our offer and we may as well move on. The offer stands, but will be withdrawn tomorrow". We received a call back from the agent two minutes later (yes, we really mean two minutes!) congratulating us on the purchase. Turns out he was just trying it on.
Investigate Property are full time, professional buyers agents. This means their clients get access to a professional buyer who buys property, thinks property and works property every single day, not just an hour or two on the weekend or during their lunch break. The result is the client is getting the services of someone who knows the market and agents intimately and as a result sources and negotiates excellent property deals. For more information visit www.investigateproperty.com.au.