You know the market and neighborhood where you are submitting a purchase offer. You know if you should expect a bidding war or not. Having this information in your hip pocket can make a big difference as the early spring market begins heating up. In some markets the list price has become more of a sales and advertising tool and less of an expectation of the selling price. In a hot market, listing at market value draws lots of attention to a new listing to instigate a bidding war.
It’s not all on you to have the best bidding war strategy. Your agent should have experience and prepare you to come out at the top of the heap. Your agent needs strong relationships with other agents to give you the insider info needed to make the deal.
Unfortunately, it’s impossible or highly unlikely for potential buyers to engage the two most likely strategies to win a bidding war. The first is making an all cash offer. All cash for at least the asking price and maybe slightly more doubles a bidder’s chance of coming out on top. This is according to about 14,000 offers made in 2016 and 2017 through Redfin agents.
The second most effective method is not much easier for most potential buyers to overcome. That’s waiving a financing contingency. Essentially, you’re agreeing to forfeit the deposit if you can’t get a mortgage. Few people are willing forfeit a significant deposit even if the risk of losing it is very low. However, some people might be willing to risk a smaller deposit. If you do, make sure your agent emphasizes to the listing agent that you are so serious about the offer that you’ve forfeited the financing contingency. This is rare enough that some listing agents might not pick up on it unless it is pointed out to them.
If you’ve been looking for a winning strategy for any time at all, you’ve probably heard about the personal letter. This comes in as the third most effective strategy in the Redfin data. What you’re trying to do with a personal letter is standout among 12 or more offers that the seller receives almost immediately after the house goes on the market. Some of the offers the seller disregards out of hand. The low-ball offers with a ton of contingencies go in the trash bin. Anything at least meeting the asking price is probably going to be reviewed.
Now the seller is crunching numbers from maybe seven different offers. The listing agent is pointing out the strengths and weaknesses of each offer. It’s all a soup of numbers that meet or exceed the seller’s expectations. One offer has a fast closing with all cash but is slightly lower than the other offers. Another is slightly higher but has several contingencies. All of the others are somewhere in between. None is a clear-cut winner.
Except for yours and maybe one other that has taken the time to write a personal letter. The seller welcomes the break from crunching numbers to read your letter. The letter tugs at the emotional part of his/her brain rather than the financial side. Your well-written letter includes flattering the seller’s ego. Assuring him or her the home will be well cared for. It gives details about why you are a serious buyer. You mention how you’re will to work through hurdles that might come up during the sales and closing processes.
One successful letter described how the couple had been searching for a home for more than two years. How they continued saving more towards the down payment as prices continued to climb. How they had several offers turned down without understanding why. You want to convey that you’re a person behind this contract. Compliment the seller on the design of the house and the neighborhood. If you can, learn something about the sellers. Maybe they raised children in the house and would be happy learning that’s your goal as well. Also assure them that you’ll take good care of the home.
Here are some other strategies that you can use solo or in combination.
Check out other strategies in the article “How to Improve Your Chances as a Buyer When Multiple Offers Are On The Table”.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 40 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.