This weekend, I submitted offers in two “bidding wars”. OK. They were more like bidding skirmishes, as a bidding war these days usually garners 3-5 offers compared to the 25-40 offers we were seeing a few years ago. Multiple offer situations tend to scare buyers. But guess, what? My clients offers were accepted in both cases. Multiple offers are unavoidable when there are fewer listings than buyers, so here are my tips on how to be victorious should a bidding war be in your future.
CHOOSE A STRONG TEAM: First and, absolutely, without a doubt, necessary is choosing the right Realtor. This is no time for namby-pamby. You need a seasoned warrior in your corner. Someone who has been on both sides of the table and has seen what separates a strong offer from an iffy one. Someone who can assure the seller’s agent that his or her life won’t become a living hell if your offer is accepted. Believe me, that is something nobody wants, and at a minimum, it is a tie-breaker.
While we are at it, your lender can also tip the scales, by answering the phone when the seller’s agent calls to verify your qualifications (which they do!) and by assuring the agent that you are a strong buyer ready to close the deal. HINT: Make sure your pre-qual ducks are in a row!
PUT IN AN OFFER: Seems obvious, right? But I have heard this so many times: “I don’t want to be part of a bidding war”. You can’t win if you don’t play.
PUT THE MOST CASH IN THE SELLER’S POCKET: This is one of the first aspects of the offers that will be compared. When you strip out all the contract terms, how much dinero will the seller put in his pocket at the end of the day? There are two parts to this math equation – the purchase price minus all the stuff you ask the seller to pay for. What’s left over from your offer gets stacked up against the other offers. I have seen plenty of offers come in where the buyer decides to play hardball, and looks silly in comparison. If you are close, you may still be in the running when other factors are considered.
This can be tough if you need closing cost assistance from the seller. From your point-of-view, you are financing your closing costs. From your seller’s point-of-view, you are taking money out of his pocket. Even if you add the credit to the top of the purchase price, there is the sticky question of appraisal potential. If the house doesn’t appraise for this higher price, well, an uncomfortable conversation about a price reduction will be necessary.
Don’t assume you are going to get a chance to sweeten the offer. If a property looks like a hot one, go in strong. You may only get one shot at it.
MAKE LIFE EASY FOR THE SELLER: Quicker closing times, shorter inspection times, a strong pre-qual, a well-written contract…all these things can spell goodness to the seller. Your needs come first, obviously, but make sure your needs are actually needs and not “well, I want to close in 60 days so I can go to the beach and work on my tan before I move” insanity. That stuff screams “flaky buyer”.
Realize that the seller might need to take the washer/dryer or fridge with them to the new place. They may love those shelves in the garage so much they want them too. Don’t make these deal killers if the seller is not willing to part with them. Understand that, maybe, on every house the sellers have purchased, they always end up paying for the home warranty or the HOA fees, so they aren’t budging this time. Be willing to lump these in with your purchase price and offer up a squeaky clean offer. Don’t ask for a bunch of weird stuff because your astrologist said your moon sign was in the 3rd house and you need to perform a sage smudging before signing the loan docs. Do that stuff after you close.
STRATEGIC MEASURES: Sometimes these strategies give you an edge in a bidding war but, be warned, they are not for the faint of heart. Seriously, these drastic measures are not for novices, and are not your best route in every instance:
- Escalation Clause – Like an Ebay proxy vote, where your offer is whatever than next guy is offering plus a little more. Needs to be capped for a maximum bid amount.
- Waive the appraisal – There are two ways this can go – you can skip the appraisal all together if you are offering cash and that is actually very common, and doesn’t put you at great risk because, well, you are paying cash. If you are financing the purchase however, the property must appraised and appraised value must be equal to or greater than the purchase price. You can offer to cover the difference in cash if the appraisal comes up short, essentially paying more than that appraiser feels your house is worth. Yeah, this one needs to be capped as well.
- Waive the inspection – You can skip the inspection or reduce the inspection period. An alternative (and less insane) approach is to make you offer “As-Is” meaning you don’t intend to ask for repairs. You can still cancel if the property isn’t up to your standards. But seriously, don’t skip the inspection!
- Non-refundable deposits – There are various ways to walk this tightrope. Maybe you (or the seller suggests) that your earnest money “goes hard” at some point. After inspection, perhaps. I have seen different takes on this but, come on, you are playing with fire here. Don’t be so quick to forego the protections the purchase contract affords when it comes to unexpected circumstances and your deposit dollars.
REMEMBER THERE MIGHT BE BACK-UP OFFERS: Once your offer is accepted, get escrow opened immediately. Get that earnest deposit check delivered to title. Schedule the home inspection and be reasonable if you request repairs. Don’t get cocky! You don’t want to get this far, then lose that sweet house because because you took your eye off the ball. If the property is really hot, there is a chance that new back-up offers come in after your offer was accepted that are better than yours, so the seller is keeping that in his back pocket “just in case”. The seller might not be willing to work with you on extensions, or tons of repairs, if he knows that he can profit if you move on.
Fear not, the bidding war. It is proof that the property you are considering has great market value (as a Realtor, I am always thinking about resale value!). Beside, someone has to win. It might as well be you!
Looking for a bidding war? Here are some great listings in West Mesa, one of the current hot spots in Phoenix Metro…there are bound to be some candidates in this list!