Home Buyers Can Learn How To Best Position Themselves To Win a Bidding War
Are bidding wars deterring you from pursuing your dream home?
Are you watching home after home disappear of the market before you even get a chance to bid on them?
In a strong seller’s market good homes are few and far between and they disappear fast making the competition between buyers fierce! In order to compete in a bidding war at the top of your game you need to be able act quickly without doing something stupid you might regret.
In this article you’ll learn why the asking price is totally irrelevant in a bidding war, ways to strengthen your offer without putting more money on the table, how to protect yourself from a “Phantom Offer” and a sneaky trick I learned by accident that allowed us to win a bidding war even though we were $50,000 less than the highest offer.
Assemble Your Team Of Local Experts
Buying a home can be a complicated and stressful process especially when dealing with bidding wars. One of the first things you should do once you’ve decided you’re buying a home, is assemble your team of experts. Each will play a significant role in their respective fields before you even get to the negotiating table. Here is a list of the professionals you will need to have on speed dial;
- Mortgage Broker
- Home Inspector
- Insurance Agent
Don’t Hesitate To Submit A Bully Offer To Avoid A Bidding War
The strategy involves dangling a cheque for an eye-popping amount in front of the homeowners before the scheduled offer date with the hope of beating rival bidders to the table.
Typically, the prospective buyer makes the offer valid for a short time and adopts a take-it-or-leave-it stance. Because of such pressure tactics, the bidders are labelled as bullies.
It’s up to sellers whether they will welcome bullies or turn them away. If you can avoid a bidding war and get the house of your dreams at an acceptable price, why not?
Understand Why Asking Price Is Irrelevant In A Bidding War
This can be tough concept for some people to wrap their heads around, but the asking price is completely irrelevant when buying a home in a bidding war.
The home could be under priced on purpose to generate multiple offers, which is a very common strategy in a sellers market. Other times you might end up bidding on a run down home that’s overpriced at the same time someone else has the same bright idea.
It doesn’t matter what circumstances create the bidding war, asking price is still irrelevant. The “value” is the only thing that matters.
Determining a value for any property is part art, part science. This is where you’re going to lean heavily on your realtor, ideally a local one. Their job will be to advise you on what the true value is for the given property based on a multitude of factors such as current inventory levels, absorption rates, current condition of the home and most importantly recent comparable sales.
Just to be clear current inventory levels and absorption rates don`t directly impact the value but they might influence you to pay a little more instead of waiting six months for the next listing to go up for sale in that neighbourhood. This is where local knowledge is worth it’s weight in gold.
I`ll give you a very specific example, in one instance we saw more home sales every month than we have seen new listings. This has resulted in record low inventory levels in surrounding areas. All other areas of the region are seeing an adequate supply of listings in most price ranges. Therefore shopping for a home anywhere in the region requires looking at different market indicators in order to best advise a buyer on value, something an outside agent might not see.
Know What The Bank Is Willing To Lend You
Your mortgage broker will look at your personal situation and give you a budget to work within. Knowing what you can afford in advance is an absolute must when shopping for a home, especially if there’s any chance of a bidding war. Getting a mortgage approval done can take anywhere from 2-5 business days. When the perfect home hits the market you might only have a couple hours to react and you don’t want to offer more than the bank will lend you. That would end in disaster!
Give The Seller Confidence In Your Ability To Get Financing
Once you’ve been approved by a lender they will provide you with a pre-approval letter which can possibly help persuade the seller to lean in your direction if someone else has submitted a similar offer. Another way to show you are financially stable is to be completely open with the sellers about other personal information such as employment details, assets or account balances. Being completely transparent in a bidding war can help build trust with the sellers. This will go a long way if they have to make a decision between you and someone else solely based your ability to buy their home.
Find Out What The Sellers Want Before Typing Your Offer
Price is usually going to be the main deciding factor when the seller is choosing the best offer. More often than not the terms of the offer can play a big role as well. The sellers may have a specific closing date they need to match, they may want to keep some or all of their appliances, they may have obvious repairs that need to be done to the home and would favour a buyer that is willing to overlook said repairs even if the seller has made it clear they are willing to fix them before closing. If the sellers have yet to find a home to move into they may appreciate a buyer who is willing to be flexible about the closing date.
Every seller has a wish list, find out what would be ideal for them then do everything you can to make it happen and it might just save you some money.
First time buyers usually have the best ability to make this happen. If you’re moving out from your parent’s house I would give the seller`s the option to move the closing date in either direction if needed. This can be very appealing to a seller especially one that hasn’t found a home to move into yet.
The Higher The Deposit The Better
Your deposit will also help give your offer more weight. I recommend having a certified cheque or bank draft drawn up to be presented with your offer. The goal behind this is to convey to the sellers how serious you are about buying their home, the larger the deposit is the more serious they will take your offer.
Helpful Tip: If your financial institution is mainly web based you might want to move your funds to a local brick and mortar establishment prior to needing access to them. Trying to get a certified cheque or bank draught from a online bank is a nightmare! The request part is easy, but waiting anywhere from 2-7 business days for the cheque to be couriered out to you can really make life difficult.
Remove Your Conditions
While conditions are inserted in most offers to protect the different parties to the transaction. Having too many or the wrong ones can definitely hold you back. An experienced local realtor will be able to advise you on which ones you will need protect yourself and which ones you will need to remove in order to increase your chances of being the best offer.
3 common conditions that can be removed or reduced with a little bit of work
- Financing:removing your finance condition can make a huge difference to the seller when they’re reviewing your offer. I would send all the property details to my mortgage broker, I would let them know the price you plan to offer and ask them if you can remove your financing clause? If they don’t recommend you removing the clause altogether ask if you can shorten the time period? The typical length of time to satisfy a financing condition is 5 business days, if you can shorten that down to 2 or 3 days the seller will definitely take that as a good sign.
- Home Inspection:removing a home inspection clause can seem risky but there are ways to limit that risk. I always recommend seeing the home as early as possible after it has gone on the market and if there is any interest in the property you can have the home inspected before the offer presentation. Unfortunately it’s not always that simple, with potential bully offers or sellers now more than ever accepting pre-emptive offers. I personally would be willing to pay my home inspector an additional fee to squeeze in a last minute inspection for me so that I can remove my inspection clause with 100% confidence than leave it in and take a chance of losing.
- Insurance:removing your insurance condition can also make a big difference to the seller when they’re reviewing your offer. I would send my insurance agent the address as well as any known specifics about the property, type of wiring, type of plumbing, age of roof, etc. and they will be able to tell you wether you would be able to obtain insurance on said property or not.
If you can’t remove any of the above conditions altogether I would strongly recommend shortening the time frame. The typical length of time to satisfy either of these conditions is five business days, if you can shorten that down to one or two days the seller will definitely take that as a good sign.
Look For Those Heart Strings
First you have to take a step back and look at this whole process from the sellers point of view. They want as much money as humanly possible when they sell their home. This is a very simple and logical process for them, show me the money and you can have my house.
As an experienced real estate agent I know that we as human beings generally buy things emotionally then rationalize them after the fact. One of my favourite tactics when negotiating in multiple offers is to turn this behaviour around and use it on the sellers. Insert picture of baby “just try to say no to me”. Find a way to get inside the seller’s heads and tug on their heart strings when presenting your offer and you’ll be amazed what can happen.
A great example of this is when I had a seller accept an offer from my buyers which was $50,000 less than the highest bid, even after the listing agent advised against it. I learned a huge lesson putting this deal together.
We viewed the property on two separate occasions and once again against the listing agents advice the seller was not to be home during showings, but of course he was. The seller absolutely hit it off with my clients and totally fell in love with the two adorable kids (who wouldn’t, the three year old smiled and flirted with the gentleman the whole time he was showing us around the home, she even blew him kisses over and over each time we left). I didn’t find out till a few months later on one of our revisits prior to closing that one of the other offers was $50,000 higher and all cash from an investor who planned to gut the place and flip for a profit. The seller explained to us that there was a very comforting feeling to know a young family would be moving in and starting a whole new chapter of their lives in that home just like he had done with his family some forty odd years ago. If you saw the tears in the man’s eyes and heard the sincerity in his voice you would agree with me that no amount of money in the world would have changed that outcome. Why?… because we got inside the sellers head and he let his emotions take over. It was totally unintentional but I learned a huge lesson that day.
Here’s some other ways I’ve put this same concept to work since;
- A handwritten letter from the buyers addressed directly to the sellers
- Pictures of the family sitting on the table while I negotiated the offer
- A short video filmed of the family talking about how excited they are to move into that house
- No matter where the offer presentation is I like to have my buyers there, ideally in plain sight if appropriate
Some might think these are dirty tricks but any advantage you can get over the competition in a bidding war will help.
How To Protect Yourself From A Phantom Offer In A Bidding War
A phantom offer is an offer that really does not exist. An agent or seller may hint they have received competing offers when they haven’t in order to spook potential buyers into raising their offers or rushing into a deal. While phantom offers are not common practice and are also illegal, you will find it more prevalent in a hot real estate market where bidding wars are common place.
Gold Coast-based real estate lawyer has drawn up a clause that can be included in an offer that states that the buyer is making the bid on the basis that it is one of multiple offers. If no other offers arrive by a specified time, the seller must notify the buyer or the buyer’s agent and give them an hour to revoke or revise the deal. If the seller accepts the buyer’s offer, the seller will provide within 24 hours the name, address and phone number of the salesperson and brokerage that submitted the competing offer.
The clause neatly deals with the potential for phantom bidders, he says. “If there wasn’t another offer, you don’t have a deal,” the document makes clear.
This clause cleverly avoids contradicting the privacy act. Asking anything personal about the competing buyer is a clear violation but asking for the salesperson’s name and contact information is not.
Final Thoughts On How To Win A Bidding War
If you’re considering buying a home or condo in a an area that is currently experiencing market conditions similar to the Durham Region, you will most likely end up in a multiple offer situation. If you use the tips in this article to get yourself prepared to do battle you’ll have a much better chance at winning the bidding war.
Happy house hunting!