How to Win a Bidding War in a Seller's Market

By
Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141

Winning a Bidding War in Today’s Tough Buyer’s Market

 

Winning a Bidding War in Today’s Tough Buyer’s Market

 

From a production and lead generation standpoint, the majority of 2021 has been attempting to navigate the housing market to find creative, outside-the-box ways for buyer’s to compete in today’s marketplace.  With demand competition far exceeding available housing supply, it’s not uncommon for homes to sell in less than a day with multiple offers, many times with sales going to cash buyers, selling above list prices, with minimal contingencies.  Things are tough out there for the average home buyer.

 

I’ve come up with some creative options and systems designed to help buyers win, but I wanted to get more insight than what I already had – advice straight from the horse’s mouth, so to speak, so I asked members of online real estate community what they were doing to help their buyers WIN in today’s ultra-competitive market.  From the answers gathered, I put together the recurring themes and some valuable insight:

 

The Money Matters

 

Recurring feedback was “spend more”.  Highest and best, from the start.  This is prudent advice, because in today’s market, starting low is a surefire way to find yourself in the middle of a bidding war, with the price tag skyrocketing as a result.  Going in with a great offer up front could help sway a seller to take a good offer rather than holding out for a great offer (the old, a bird in hand is better than two in the bush mentality).  Based on feedback gathered, price is the winner when it comes to “what’s most important”.

 

The good news is that most forecasts show appreciation in real estate is expected to continue in most markets – for this reason, it may make sense to spend $25k extra on a home that will likely be worth $50K more in a year’s time.  Talk to your lender and look at market data (we have systems to illustrate market data and appreciation forecasts) to determine if a higher offer price is worthwhile to get the home of your dreams.

 

Contingencies are in play

 

In a normal market, a sales contract has many contingencies:  inspections, appraisal, financing, and sometimes “I need to sell my home first” contingencies, amongst others.  In today’s market, however, to structure a competitive offer, it seems like a wise move to be careful about the contingencies coming with your offer.  In a market where you’re confident in local values and appreciation forecasts, an appraisal contingency may not make sense (and may push your offer to the bottom of the stack in a multiple offer situation).

Certain contingencies aren’t wholly necessary.  An appraisal contingency, if as a buyer you’re prepared to pay extra for a home if an appraisal comes in below the sales price, may not be necessary.  A good lender (may I suggest, me?) can get you fully approved in underwriting prior to you finding a home and placing an offer, leaving a financing contingency less important than it may otherwise be.

One contingency I would never suggest foregoing is a home inspection – yes, even for new construction (you’d be amazed to see some things builders miss!).  That said, you can give the seller an extra layer of comfort by noting that as a buyer ,you won’t pick an inspection apart or be seeking price reductions for minor issues that can easily be remedied after settlement.

Contingencies are an area where you can get creative – for example, one agent suggested that if an appraisal contingency is really important to a buyer, perhaps offer to pay some of the seller’s standard closing costs (title costs, transfer taxes, etc), as these aspects of the transaction aren’t a risk to the seller should an appraisal come in lower than expected or lower than the offer price.

 

Remember, sellers are people, too

 

Yes, sellers are in the driver’s seat right now and it’s a pretty unfair market in many ways for buyers, but it wasn’t that long ago roles were reversed.  Even in a commanding position, sellers are still real people with real lives – and many times, when selling, they also turn into buyers.  Keeping this in mind can help win a deal if you can be flexible in your offer terms – an offer with a ‘rent-back’ option, for example, can give sellers peace of mind if they have yet to find their next home.  Allowing them to occupy the home for 30-60 days after settlement could be enough flexibility to counter stronger buyers or cash offers.

 

Not sure what might help most?  Ask.  Sometimes just asking the seller (through their listing agent) if there’s anything that’s not obvious that might help then with their next move will get you information that could overshadow another buyer’s more cash-heavy offer.  If nothing else, a little creativity can help an offer stand out.  The seller of the home you’re interested in is a person with their own goals – find out what they are, and structure your offer accordingly.

 

More skin in the game

 

One thing to consider when putting in an offer is the deposit – a motivated buyer is more likely to put more “skin in the game” through their earnest money deposit (or in states like North Carolina, their due diligence fee).  Putting more cash at risk to get under contract is a signal to a seller that you’re serious.  In market’s where $2-3k is standard, putting a deposit of $20k into the contract can help a buyer stand out from the pack.

 

Cash is King!

 

Don’t have hundreds of thousands of dollars laying around in your checking account?  Perhaps you could turn yourself into a cash buyer by borrowing from family or friends?  With delayed financing, you can buy a home cash and immediately do a cash out refinance to recoup the funds spent – with delayed financing, you can borrow your acquisition costs (up to 80% of the property value on a primary, 1-unit residence) to immediately get back the money spent on a new home. In this case, if it truly takes being a cash buyer to get the house or offer a quick close, you can be a cash buyer and then immediately get the financing you need.  Keep in mind, going this route, you’ll want to work with an expert lender and have no doubt you’d be approved for the refinance loan.

 

How do I love your home?  Let me count the ways….

Finally, a good old fashioned, heart to heart love letter is another suggestion we saw in our poll.  While some agents stay away from the “love letter” for various reasons, the fact remains that as we mentioned before, sellers are people.  Perhaps you have a situation that resonates with them and your offer isn’t the best, but is good enough.  When it comes to a sincere letter on why you love the home you’re looking at, worst case scenario is it won’t matter, and best case, you strike a chord with the seller to get a conversation started.

 

None of these options are guaranteed to win the day – there will always be someone with more money that can buy faster and is a more perfect fit for a seller, but knowing strategies to approach the market will increase your odds and help you avoid losing out on more homes because you didn’t have a plan.  Which brings me to my final point – before going out to look at a home, ensure you have a great team of experts to help you navigate what is one of the toughest markets for home buyers in recent memory.

 

Have questions on home buying and want to work with a team that can give you an edge?  Ask an expert here or contact us today!

 

content originally posted on jmloans.com

Comments (18)

Anna Banana Kruchten CRS, CRB, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

John you've got lots of good points on how to win a bidding war.  One other highly effective strategy is for the buyers agent to call the listing agent up front, like right away, and start building a relationship as well as finding out if the seller  needs a certain COE etc. I am surprised that so many agents don't do this.  And I also am aware some agents won't take calls....which is my mind is a bad business practice.  I answer all calls from agents on listings.  Just makes sense.

 

I am absolutely not ok with writing a letter to seller.  These letters are so fraught with potential legal issues, in particular fair housing issues.  Our sellers put it in writing that they don't want to see any letters.

 

One more thing - we let buyers know they're 'welcome' to have a home inspection but seller will not be making any repairs or cash allowance. Period.  This works because at least the buyers know what's going on with the home.  And if they walk we've got back ups in place and/or we'll put it back on market and it will be sold right away to another very happy buyer.

Apr 27, 2021 03:53 PM
John Meussner

Thanks Anna, it seems people love the love letter or hate it.  I personally love them, but can see the potential pitfalls.  It's a shame we live in such a litigious society.

Apr 27, 2021 04:48 PM
Sheri Sperry - MCNE®

Hi Anna,


In today's market, you are right on point.  Establish that relationship and find out what it is going to take to close.  

Apr 29, 2021 03:07 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

There are great ideas here, John, and we are seeing them used all pretty commonly. The "rent back" (often free) has become very popular (just did 2 of them on my listings). Talking to the listing agent up front makes so much sense to find out what the hot buttons might be AND develop a relationship, plus see that you are a great agent, and communicator, to work with. And perhaps have your lender call the agent, too, and follow-up on the pre-approval letter.

 

I get the popularity of "love letters" but I think they are  pretty risky and with more focus on fair housing laws these days, and all the competition, I think they are best left out of the mix.

 

And make your best offer right off the bat - you may not get another chance.

 

Jeff

Apr 27, 2021 11:24 PM
John Meussner

That last one is so so important right now, it's not time to "start low and negotiate"

Apr 28, 2021 02:33 PM
Kevin Vitali
EXIT Realty Beatrice Associates - Middleton, MA
Helping Massachusetts Home Buyers and Home Sellers

Nice article John.  It is certainly tough for today's home buyers and these are some great suggestions.  And, to Anna's point, establishing a rapport with the listing agent can help.  I have tipped the scales in favor of my buyers for first being in the business 20 years and my reputation, but also because I have picked up the phone and had a dialogue with the listing agent.

I know as a listing agent it is frustrated to get an offer on a property with zero communication from the agent.  It makes you wonder if they will be a ghost through the whole process.

Apr 28, 2021 05:08 AM
John Meussner

Building rapport certainly can go a long way!

Apr 28, 2021 03:22 PM
Erik Hiss
Keller Williams Capital Partners Realty - Worthington, OH
You can trust me for all your real estate needs!

Thanks for bringing all of these good points up. Sadly I've used them all and it's still a tough market :( More and more here in Central Ohio I'm seeing the inspection waived which I'm not okay with nor will I ever advise my buyers to do that. I hope it turns around so the everyday buyer can start buying homes. 

Apr 28, 2021 05:43 AM
John Meussner

I'd never advise foregoing an inspection either, WAY too much risk in that (I think we'll see lawsuits against sellers for lack of disclosure in the near future --- as a seller I would not want to have a buyer without an inspection).  It's tough out there, but we do what we can to give our buyers an edge!

Apr 28, 2021 03:23 PM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Some good info here to assist in winning a bid. Inspections are importsant and it can be written into a contract as being for informational purposes unless a structural or habitability issue exists that has a certain dollar value included, such as greater than $500.  Big dollar items will not go away for any buyer.

Apr 28, 2021 06:12 AM
John Meussner

Agreed, Ed.  I like the way you phrased that as well - get an inspection, but buyer promises to not nitpick the little stuff

Apr 28, 2021 03:23 PM
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

Great suggestions for all those frustrated buyers out there trying so hard to get a home.

I'm not a fan of the "love letter" though. When I sold my home and had multiple offers I received a letter and it felt too much like a ploy....emotional manipulation.

Apr 28, 2021 06:45 AM
John Meussner

I agree with you, EXCEPT I've seen some really amazing letters that are sincere, touching, and could definitely help get an offer accepted.  But they're not for everyone, and I understand why.

Apr 28, 2021 03:24 PM
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

Often you contact the listing agent to present a strong case. In most cases, I inform them the details and seek their advice.  Several times they tell me they will not counter back because it will start a bidding war blow up the price putting my client into jeoperty. When all in quiet I know they are not looking for offers. A few will do dual agent. Many I talk to are honest tell me their will not be that way.

Apr 28, 2021 07:03 AM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear John,

Have not come across across anyone with beaucoup bucks or family, who would lend enough to pay cash. I find the home inspection important for the seller too. If the water heater was in good shape at the point of sale, the buyer cannot come back and be sore about their overpriced purchase by suing the seller for it or a myriad of other issues a couple of years down the road.

Apr 28, 2021 08:22 AM
John Meussner

Agreed Dorte, the inspection does protect the seller!  And here in the bay area, a LOT of people have a LOT of money, so borrowing (even hundreds of thousands of dollars) from family is a possibility for many if the debt can be repaid quickly

Apr 28, 2021 03:25 PM
Shayne Stone
Champion Real Estate Group - Missouri City, TX
"Your Rock Solid Choice Realtor"

Great information!  Thanks for sharing and have a wonderful day!

Apr 28, 2021 10:20 AM
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Broker / Author / Advocate/Short Sale

Comment on "love letters", it's not so much if one likes or hates them, it is a potential set up for a LEGAL issue (Fair Housing Laws).  Best to NOT use them rather than trying to find the "right words" to place in them.

 

Went through a "Highest and Best" scenario in the last 2 weeks, to move a fix-up condo, with Cash Only offers.  I had 48 showings over the weekend, 21 offers in hand.  6 offers had escalation clauses! (Not a Fan of these clauses)

 

The Highest "price" was brought in about $49,000 over list price.  The BEST part, was all my Seller (Trustee of Owner Trust) was to sign once and lock the Buyer in place.  With NO inspection contingency, 12 day closing.  

 

Many with escalation clauses were not happy, only ONE would have placed that offer over $1,000.  To my Seller, that was not as acceptable than one signature and done.  That was the BEST to my Seller.  Folks need to remind themselves, escalation clauses need to be ratified through an amendment (why do that-who would sign a contract with a pretend purchase value, until amendment signed) OR a Counter Offer with that price... hmm, let me think, what could happen in these scenarios? Minds change!!

 

 

Apr 28, 2021 10:41 AM
John Meussner

I can see that perspective Dan - love letters aren't for everyone, but if I were a buyer (and I was not that long ago), I'd do whatever I could to try to get the house.  Whether a seller agrees to look at it is another matter, but never hurts to write one.


Good point on escalation clauses - I'm OK with them IF accompanied by an extremely competitive offer.

Apr 28, 2021 03:27 PM
Paula McDonald, Ph.D.
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

Excellent points here. I've had numerous conversations with Sellers and Buyers that while the price is important, there are many other aspects that make a good offer.

Apr 28, 2021 02:42 PM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi John,

I don't think we have seen a crazier market than right now.  When a $500,000 home gets an offer of $100,000 over asking, it is hard to beat that! I tell my clients to go as a backup every time.  You have nothing to lose. I have been 3rd in line and closed a home!

Apr 29, 2021 03:10 PM
John Meussner

Amen to this - things fall out for many reasons, and I'v enoticed people that ARE ridiculously overspending really expect every other aspect of the transaction to go their way - and rightfully so.  They should be getting white glove service and then some if they're overpaying by so much.

May 03, 2021 10:17 AM
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

Hi John, Winning the bid in a seller's market indeed takes some smarts and strategy.  I do agree that love letters can backfire.  Many real estate state associations including PA are issuing guidance on legal issues arising from love letters.

Apr 29, 2021 07:07 PM
Sam Kader MLO 130505 MB 78982
Pacific Coast Financial LLC Lic# MB78982 - Seattle, WA
Real Estate NMLS 91980 Mortgage Broker Lic MB78982

Excellent posting John. Here in Seattle, the first and the last option are the most exercised. 

Apr 29, 2021 10:15 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good afternoon John Meussner ,

Great post and one of the best list of tips to help navigate this insane market! The love letter has always been a pull at the heart strings but unfortunately in today's world not a good idea especially concerning the fair housing laws. Our Broker is strongly advising us not to write them.

May 01, 2021 11:33 AM
Matt Brady
Finance Of America - Del Mar, CA
One of San Diego's Best Lenders

Great compilation of ideas John! I am intrigued by your inspection comment on new construction. "you would be amazed at some things builders miss". It would really be the city inspectors that missed. Might be a good topic for another blog.

May 02, 2021 06:50 AM
James (Jim) Lawson, DBA
DomainRealty.com LLC - Bonita Springs, FL
Broker Associate, RSPS, BPOR, HI & PE

Great points John. Just had a multiple offer experience as the listing agent. Went for $20+k over list price. Two offers included escalation clauses to complicate the decision process. The seller is still happily stunned and I lost some more hair.    

May 02, 2021 11:08 PM
John Meussner

I'm out of hair, too Jim - it's only going to get better for bald guys like us from here ; )


 


I've heard a few folks say escalation clauses were frowned upon by sellers because it involves multiple counters and more headache when other competitive offers were on the table.  Escalation clauses have their place, but in today's market, it seems 'highest & best' from the start is the way to go.

May 03, 2021 10:19 AM
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

Thanks for sharing John!

With demand competition far exceeding available housing supply, it’s not uncommon for homes to sell in less than a day with multiple offers, many times with sales going to cash buyers, selling above list prices, with minimal contingencies. 

May 03, 2021 04:45 AM

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