Thursday, October 10, 2019 / by Kevin Oliver
By Terri Williams | Oct 10, 2019
As the saying goes, a home is like a personal castle—and when you're out there battling other buyers to win one, it can seem like a "Game of Thrones." Yes, intense bidding wars can even break out in a buyer’s market.
For a buyer, it can be discouraging to hear that multiple offers have come in for the home you have your heart set on. If it seems like a bidding war is brewing, you'll need a plan to come out on top—and a clear understanding of what your seller is looking for in a buyer.
With your noble quest in mind, here are six strategies to help you win a bidding war.
1. Avoid a bidding war in the first place
Want to know the best way to win a bidding war? Make sure there isn’t one.
“Ask your broker to see if the sellers have a price in mind that would compel them to call off the bidding war,” says Lisa Larson, a broker at Warburg Realty in New York. She says the seller may respond to a bold, preemptive offer. It’s a strategy that has worked for Tracey Hampson, a real estate agent at Realty One Group in Valencia, CA.
“I always like to speak with the listing agent and simply ask what's important to the sellers,” she says. For example, they may need a 45-day escrow or want to keep the washer and dryer. Sometimes it really is that simple.
2. Have a pre-approval letter
However, you can’t always prevent a bidding war. So, you may need to dust off your armor and join the battlefield. And one essential weapon is a pre-approval letter.
Don't confuse this with a pre-qualification letter, which just means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount. It's just a rough estimate.
A pre-approval letter, on the other hand, shows that an underwriter has reviewed all your financial information and the lender is prepared to offer you a mortgage up to a specific amount.
Having that pre-approval letter might help your offer move to the top of the pile.
3. Make it rain
“Cash is king, and all-cash offers hold a lot of weight in a bidding war,” says Brian Morgan, a licensed associate real estate broker at Citi Habitats in New York.
If you can’t afford to pay cash, Morgan says you need to make the down payment as large as you can.
“It’s another sign you are serious and have the ability to afford the property," he says.
Another way to make it rain is by offering a higher escrow deposit.
“Contract deposits are typically 10%, but a buyer could offer to put more on the line,” says Robert Rahmanian, co-founder and principal at REAL New York. “This move reduces the risk to the seller while increasing the risk for the buyer because they stand to lose more money."
The third way to impress the seller with a deluge of cash is to simply offer more than the asking price. Rahmanian recommends the strategy of offering slightly above an even number.
"For example, if the asking price is $400,000, instead of offering $402,000, offer $402,350,” he says.
4. Compress contingency timelines
During a contingency period, a buyer can back out of the contract for a variety of reasons. But you can appeal to sellers who are looking to close the deal quickly by reducing your contingency period timeline.
April Macowicz, broker associate at the MAC Group in Lompoc, CA, suggests reducing your inspection contingency—which is typically 17 days—to five days.
Also, the fewer contingencies you have, the better. So you can make your offer more appealing by including the bare minimum of contingencies.
“Most sellers do not want to risk having to put their home back on the market because a sale fell through due to a contingency,” Burns explains. A clean offer is much more attractive.
So, what kind of contingencies should you avoid putting into your offer if you sense you'll be heading into a bidding war?
“Don’t make a lot of requests for home improvements, or require that your home sell first before you close on the new property,” says Morgan. If the sellers really want to take something trivial like a light fixture with them, let them take it. You can buy another one!
5. Have an experienced agent in your corner
All your preparations could turn out to be worthless, however, if your agent is not experienced in bidding wars. You want to be confident in the person representing you.
“Choose your agent wisely and make sure they have a good reputation with other agents,” says Macowicz. “Trust me, the agent can make or break your deal."
6. Write a personal letter
Opinions vary on whether writing a personal letter helps or not. Some real estate agents are against it and say they won’t even show it to the seller. Other agents swear by personal offer letters.
Morgan says it can certainly tip the scale in your favor.
“In the letter, tell them how much you love their home and that you look forward to spending many happy years there,” he says. “Don’t be afraid to compliment their property, but be sure to be sincere.”
If the offers are similar, Larson says a letter can help you stand out in a crowd of bidders. Remember, sometimes the best offer isn't always the highest but the one that comes from buyers who will follow through and see the transaction to a smooth completion.