Bigger Bids Aren't Always Better Bids

The regional sales contract anticipates this possibility and includes protective language for the buyer. The contract language says that if the property appraises below the purchase price, then the buyer can ask the seller to lower the price to the appraised value. If the seller and buyer cannot agree on a new purchase price, then the contract provides that the parties can walk away from the contract and neither party is in breach.

In multiple offer situations, buyers sometimes "waive the appraisal language," meaning that they strike this protective language from the contract. By doing so, the buyer is saying that he will proceed with the transaction no matter what value the appraiser determines. If the buyer has waived the appraisal language and the property appraises below the purchase price, the buyer may need to come up with additional funds to make up the difference between the appraised amount and the purchase price.

· From the buyer's perspective: Examining comparable sales data can provide a fairly good idea whether a property will appraise at or above the purchase price. However, an appraisal is an independent assessment and, sometimes, more art than science. There are no guarantees that a property will appraise at or above the purchase price. An offer that includes the appraisal language poses a real risk to the seller.

Waiving the appraisal language can be an effective way for a buyer to make his offer more attractive. Most homes appraise at or above the purchase price. However, a buyer should consider waiving the appraisal language only if he is financially able to come up with the additional money necessary to close even if the appraisal comes in low. If a buyer is going to waive the appraisal language, he can maximize the impact by providing the seller with verification of the funds to proceed with the transaction if necessary.

· From the seller's perspective: Anyone can cross out a paragraph in a contract. Just because a prospective buyer has waived the appraisal language does not mean that the buyer is financially capable of going through with the transaction if the property appraises below the purchase price. A seller must consider the buyer's ability to come up with the money needed to close. A high-price offer that waives the appraisal language is good from the seller's perspective, but a high-price offer that waives the appraisal language and also includes verification of the buyer's funds to close is better.

Earnest Money

· Description: Earnest money is the money that the buyer puts into an escrow account at the time he makes an offer; the idea is to demonstrate good-faith intent to go forward with the transaction. An earnest money deposit is not an additional cost of doing a transaction, but rather an advance payment toward the buyer's closing costs and down payment. An earnest money deposit will be held in escrow until it is released at settlement, by mutual agreement of the parties or upon court order. If a buyer walks away from a transaction without a contractual right to do so, he risks forfeiting the earnest money to the seller.

· From the buyer's perspective: There is no fixed rule for how small or large an earnest money deposit a buyer should make. Of course, the more earnest money, the more serious the buyer appears. Earnest money deposits of anywhere between 2 percent and 5 percent of the purchase price are typical in this area. In competitive situations, however, the percentage can be much higher.

· From the seller's perspective: The bigger the earnest money deposit, the less likely the buyer will walk away from the transaction. In addition, in general, the larger the earnest money deposit, the more likely that the buyer will be able to get financing.

As-Is Offer

· Description: An "as is" offer means that buyer accepts the property in the condition that it is in -- usually determined as of the date the contract is accepted -- and that the seller has no responsibility to make any repairs.

· From the buyer's perspective: In most cases, a buyer will not know the property condition when he makes an offer. However, in many competitive situations, buyers are making as-is offers. These buyers are taking on unknown risk.

For a cooperative or condominium, the potential risk is not as great because the owners association is generally liable for the structure and sometimes some of the mechanical systems.

There are many ways for a buyer to structure an as-is offer to protect himself from these unknown risks. For instance, one way to reduce this risk (if time allows) is to conduct a "pre-offer" home inspection. Most sellers welcome a pre-offer inspection because it increases the likelihood of getting an as-is offer from a buyer who will not get cold feet later. Another way to reduce the risk is to use other contractual rights to achieve the same purpose as a home inspection contingency.

· From the seller's perspective: An as-is offer is appealing to a seller because the seller will not have the inconvenience or expense of repairs. In addition, an as-is offer is attractive because the buyer does not have a contractual right to walk away from the deal because of structural problems. Everything else being equal, an as-is offer from a buyer who has done a pre-offer inspection is a more solid choice than an as-is offer from a buyer who has not done one.

Other Terms

The deal terms above are just some that come into play in a multiple offer situation. There are a host of others including settlement date, the settlement company, whether the buyer offers the seller a "rent-back," contingency for the sale of the buyer's home and contingency for the seller's ability to find a new home. Every deal is different and it may be that a seemingly trivial item could be the difference in whether an offer is accepted or whether the seller gets what he expects at the closing table.

In putting together a bid, a buyer who focuses just on price is doing himself a big disservice. All the terms of the offer should be crafted to make an intelligent offer given the buyer's abilities, circumstances and desires. In evaluating multiple offers, a seller must compare the strengths and weaknesses of each and choose the one that best meets the seller's needs.

Steven C. Wydler and Hans L. Wydler are Long & Foster real estate agents who work together as the Wydler Brothers Realty Team. Steven, who is based in McLean, is a former transactional lawyer. Hans, based in Bethesda, has an MBA from Harvard University and more than 15 years of marketing experience.