Let’s face it. Bidding wars are no fun. Multiple offers on the same house mean nearly everyone loses. This is why bidding wars require a strategic approach.
Because the inventory is so extremely low, expect to face competition. It doesn’t matter what the house is like, where it’s located or the price range. Competition runs throughout the marketplace. As a result, you need to do everything you can to beat the competition.
This is why I tell my customers that bidding wars require a strategic approach. Let’s look at a few strategies to help you.
What’s a seller worried about most?
Homeowners are most concerned about the price they’ll get. As a result, win them over by eliminating their fear.
Do this by effectively using an escalation clause. Because so few agents understand it, the escalation clause is sometimes perceived as a problem while it’s a solution. However, you can turn that around by presenting it correctly.
Escalation clauses say I’m offering XYZ for your home but if someone comes in higher, I’ll give you up to ABC more. Let’s take a $500,000 offer. If higher offers come in, you’re willing to go up to $550,000 in $10,000 increments as necessary.
Some folks wonder if this is too much at each step. It isn’t because you can’t afford weak moves in this market. The idea is to knock off the competition.
The key to this is how it’s presented. Sellers need to understand this for what it is: It’s an offer from a buyer who is making a special effort. You are so committed to this home that you’re willing to go an extra mile to get it.
Additionally you are not caught up in a moment’s bidding emotion. There are buyers who win a bidding war but later realize they really don’t want the house at that price. You’ve considered things carefully and are sincerely making your offer. As a result, you represent stability.
Financing can set you apart from the pack
There are offers that come in as cash. Others eliminate the mortgage contingency. Additionally you’ll also find that some people are willing to pay the difference if the appraisal is low.
Are you, like most home buyers, using a mortgage to buy a house? If so, how do you compete with a cash offer? Or someone who eliminates the mortgage contingency? Use multiple pre-approvals from excellent high profile banks.
I can tell you that what I normally see is only 1 pre-approval with an offer on my listings. Cash offers come in with proof of funds on only the deposit or down payment. Do better so you stand out.
Get 2 and, even better, 3 pre-approvals. Use well known banks. How do you think a seller would respond to a pre-approval from Weichert Financial Services and Wells Fargo? Let’s go even further. Why not include a bank statement showing you have the full deposit on hand? Now how do you think you’ll appear to a seller?
When I represent a buyer, I also add in something specifically for the listing agent. The seller’s agent is allowed to call the banker directly during the transaction to check on things. This is a very strong move because only a financially secure buyer would do this.
Another strategic approach involves making the transaction easier for the seller. Tell them you’ll handle the fire code certificate inspection, get a cleaning service for their move out, grant them a use and occupancy so they can move out the day after the closing instead of being rushed plus grant them flexibility in a closing date.
Here’s something else. Rather than eliminating the home inspection, tell them that you won’t argue for the 1st $3,000 of issues found. All of this may come with some cost but always less than going up $5,000. Because you are offering them a problem free way out of their house, you also appear as a sincere buyer.
Bidding wars don’t have to be about price only. Think and act strategically to rise above all the others. You’ll be glad you did because while this doesn’t work all the time, it does work. Anything you can do to enhance your position as a home buyer is important to your success.
Contact me if you have questions or would like to talk about your options in this market.