It’s Sunday evening and John and Mary Homeseller and Anita Deal, their real estate agent, are sitting at the dining room table, ready to confront a pile of purchase agreements. The Homesellers were smart to listen to Ms. Deal’s advice and decided to entertain all offers simultaneously, rather than have them trickle in, piecemeal.
The Homeseller’s own an attractive home, priced right, and are in a hot market. Which offer will win the bidding war? And, why is your offer the one that didn’t? What does your competition have that you don’t that caused them to win the bidding war?
- They have loan pre-approval
Even a slight suspicion that you may have trouble qualifying for a mortgage could cause the seller to eliminate your offer from consideration. Your competition took the time to prepare and win the bidding war by seeking a lender and getting pre-approved for a loan.
They may have even gone so far as to request a letter from the lender stating that they’ve completed the underwriting process and they’re ready to go, pending the home appraisal.
Benjamin Franklin was right. “By failing to prepare, you are preparing to fail.” If you want to stand out and have a chance to win the bidding war, make sure you get pre-approved from a lender.
- Their offer contains an escalation clause
Suppose Mr. and Mrs. Homeseller are asking $250,000 for their lovely home. A good agent knows there will be multiple offers and their aim is to submit the cleanest, strongest offer possible.
This good agent will write the offer at full price with an escalation clause stating that their client will pay $2,500 more than competing offers up to a specified maximum – an amount his client is comfortable paying.
In essence, this buyer’s offer will increase incrementally up to that maximum. Is this a smart move? There are two schools of thought — yes and no. If you want to win the bidding war, this is something to consider.
Those who think it’s a wise move say, the strategy shows that you are earnest in your desire to win the bidding war and ultimately the home. And, in fiery real estate markets, this strategy will grab most sellers’ attention.
The naysayers feel that buyers may get carried away and place the maximum bid higher than they can afford, should they win the bidding war. This is another reason why it is good to know what you are pre-approved for.
If you aren’t comfortable with an escalation clause, your agent can request that your offer be held as backup, in case the accepted offer falls through. This happens frequently in multiple-offer situations. In their frenzy to win the bidding war, many buyers make irrational offers that they can’t fulfill.
- Your offer has too many contingencies
Think about the scenario we painted at the beginning: Mr. & Mrs. Homeseller and their pile of offers… Their agent will scrutinize every line, of every offer, down to the smallest detail. While we may not know exactly what the sellers’ hot buttons are, we do know that they want top dollar. So, naturally, the offering price will be the first place they look.
After that, they will scrutinize the terms of each offer. How many contingencies is each buyer requesting and how long do they want to be able to take to fulfill them? Are there any deal-breaker contingencies, such as the buyer needing to sell his or her current home before consummating this deal?
Offers with too many demands and lengthy contingency periods will most likely end up at the bottom of the pile and surely not see you win the bidding war.
The competition that wins the bidding war won’t ask the seller to buy him a home warranty, pay for closing costs or get nit-picky on the repairs he wants the seller to pay for.
- They have more cash than you
Cash is “king” in real estate, as it is in any other financial transaction. The all-cash buyer has an enormous advantage over buyers who need financing to buy the home.
If you can’t pay cash for the home, a larger down payment will be attractive to the seller as will proof that you have the funds to close the deal and the cash reserves to make up the shortfall if the appraisal is too low.
Some sellers are impressed with a large earnest money deposit and that strategy just might allow you to win the bidding war.
- They did their homework
You most likely did not win the bidding war because your competition outsmarted you. They hired the right real estate agent who painstakingly researched current market values in the neighborhood so their clients knew exactly how high to offer, in order to win the bidding war.
Their agent took the time to speak with the listing agent to find out what the seller’s hot buttons are – what their motivation is for selling and what the buyer could do to help the sellers reach their goals. Then the agent structured the offer accordingly.
For instance, suppose the seller is hoping to be able to rent back the home for a month or two after closing while he closes on his new home. This is valuable information because the agent can structure the offer to allow the sellers to remain in the home after closing, as tenants. In particularly hot markets, some buyers even offer the seller a reduced rent will remarkedly raise your chances to win the bidding war.
- They’re faster than you
If you’ve missed out on any number of homes by not being among the first to view them, you understand that time is of the essence in a sellers’ market. Sure, it’s challenging to create time at the last minute, in a busy schedule, to tour homes. However it’s a must if you hope to be competitive in a multiple-offer situations and win the bidding war.
Your competition has signed up on their agent’s website to be notified of new listings as soon as they hit the market. Which by the way, I do for all my clients looking to buy a home. This shows you that I’m on top of my game by vigilantly seeking listings that fit your needs so that YOU can win the bidding war.
Like any battle, it’s incredibly hard to win the bidding war against an equally matched foe. Hone your tactics and strategy and enlist me as your real estate. Your chances to win the bidding war will be much more successful!
Last, if you’ve never purchased a home before, here are the steps to buying a home.
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