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