Strategies to help you win the bidding war
We have been looking for a property for ages and finally we have found something we both really like. Unfortunately there are five other people who are also putting offers in on the property. We don't want to get into a bidding war, what shall we do?
People make the mistake of thinking we are in a “soft market”. Whilst it's true prices have returned to real market level, if we get a really good property which is priced correctly, it's not unusual to get several people putting in good bids — sometimes above asking price. This can be known as a “bidding war”, but in the eyes of the seller it is an opportunity to choose the best out of several offers.
I am always surprised when my buyers say they don't want to get into a bidding war because in many ways every property purchase is a bidding war, it's just that on less popular properties the process moves more slowly. Sellers love them. It ensures that they get a fair price and, with credit to them, it demonstrates the positive side of coming onto the market at the right price. Ironically, the sellers don't always choose the highest price. For buyers it is somewhat comforting to know that you are buying a property that in all likelihood is going to hold its value and be just as popular when it comes time for you to sell however it can also make them feel like they're in the middle of The Hunger Games, competing in a fierce battle to win the house they love. At least they won't perish in this process but it's certainly easy to get discouraged if edged out multiple times when trying to buy.
The best move you can make before writing any offers is to work with an experienced, professional real estate agent. Having someone who knows your local market thoroughly and can guide you through these sometimes tough negotiations means you've got first-hand, good advice when you enter a bidding war. And the best part is that it's free; commissions are typically paid by the seller so the advice will not cost you. Here are some strategies to help you come out on top:
1, Get a pre-approval letter from your lender
Getting pre-qualified, which merely confirms your income and how much a bank might be willing to lend you based on your credit profile, isn't the same as having pre-approval for a specific purchase offer.
You can up your chances of beating out other buyers by including a letter from your bank stating that your lender has underwritten your application and it's simply pending appraisal.
I would advise submitting all of your financing documentation to your lender before looking at homes, and certainly before writing any offers. That way you can move quickly when you find the home you want, and avoid the stress of submitting pre-approval paperwork and writing an offer at the same time.
2, Use an escalation clause
If you're in a multiple-bid situation, you can strengthen your offer by using what's called an escalation clause. It's essentially an offer addendum that states you're willing to increase your offer incrementally up to a certain limit if other offers come in that match or top your initial bid.
For example, say the seller's asking price is $800,000. Your real estate agent would write your offer to state: “My initial bid is $775,000 with an escalation of $5,000 over competing offers up to $825,000”, or something to that effect. If another bidder offered more than $825,000 however, you'd be out of the running.
An escalation clause is a smart strategy that shows strong interest, but it's important to stay within your budget and be willing to walk away if bidding goes beyond your limit. When using an escalation clause, offering up to 10 per cent above the purchase price is a guide, especially if you're in love with the home and you're not willing to lose it over that 10 per cent difference. You can also allow your bid to be held as a back-up offer for up to 20 days if the higher bidder makes an irrational offer and it doesn't pan out.
3, Limit the contingencies
Sellers have the upper hand in a multiple-bid situation and they want offers that are clean and concise. If you know other bids are coming in and you really want a home, avoid putting in too many contingencies or making too many demands.
Don't include things like structural survey (have that done before putting in an offer), repairing something or including furniture or particular items. Having too many contingencies in your offer will make it likely that a seller tells you “no” over another offer — even if it is the same or less money — as it is a cleaner offer.
4, Be flexible on the closing
Let's say someone outbids you by a few thousand dollars, but you're willing to give the seller more time to move out. That flexibility can make you the front-runner in a multiple-bid scenario. I have seen buyers snag their dream homes even when outbid. because they either let the sellers rent back the home for a period or pushed back the closing date to accommodate them. Extending that courtesy can make your offer more attractive to a seller who might otherwise have to spend more on moving expenses or be crunched for time to find another home.
On the other hand, if a home is already vacant, sellers can be concerned about liability, theft, holding costs and hazards. Sometimes you can win the seller over by offering to close in a shorter time. Buyers who offer to close quickly — sometimes within 30 days — can edge out buyers who haven't been preapproved or have to sell their current home to buy a new one. It also helps if you are in a cash position to pick up the seller's portion of the legal fees on the conveyance and the stamp duties. Typically these costs are split between the two parties however on a home purchase of $800,000, paying the seller's portion can sweeten the deal by as much as $16,000 to $17,000.
5, Write a “love letter” to the seller
With so much fierce competition out there, sometimes appealing to the heart can make your offer stand out. You see it on television and, in one instance, we had a buyer who did this and it worked! Most sellers are just concerned about the bottom line so this won't always have the effect you are looking for — however it won't hurt. Real estate can be a very emotional transaction for both the buyer and seller. Some people even enclose photos of their family and pets.
6, Don't count yourself out after a bidding war
If you lose a bidding war and the seller chooses another bid, have your agent keep in touch if you're still interested in the house. If a buyer offered way over the asking price, the deal could fall apart on appraisal or the buyer might be bidding on multiple properties to see which one sticks. We have a saying in real estate: “The highest offer doesn't always mean it's the best one”. Offers that come in way over asking price have a very high cancellation rate. When that happens, the seller loses the momentum of being the new home on the market and that could make your offer attractive again.
7, Plan ahead to get the edge
The home-buying process can feel cut-throat at times, and indeed it's not for the fainthearted! However, you'll be in a better position to win the house you want with a knowledgeable realtor to help you write a strong, competitive offer that follows these strategies. You may well lose one or two bidding wars before you win one but chances are you'll end up with something you love in the long run! Good luck on your home search, and may the odds be ever in your favour!
• Heather Chilvers is among Coldwell Banker Bermuda Realty's leading sales representatives. She has been working in real estate for 27 years. If you have a question for Heather, please contact her at firstname.lastname@example.org or 332-1793. All questions will be treated in confidence. Read this article on Facebook: Ask Heather Real Estate