5 Tips on Winning Bidding Wars Besides 'Offer More Money'
The competition for houses is intense right now. Would-be buyers are finding that they are competing with others on almost every house they want to purchase. Below are a few ideas for winning those houses. Though not everyone can or will be comfortable with all of them, they are invaluable in the right situations.
Offer odd amounts of money. Obviously sellers want more money, and many are getting more than their asking price. Your competition will almost always offer money in even amounts (For example, $730,000) so if you are in a competitive situation we recommend offering a bit over the obvious even amount. (In this situation, we would recommend $731,000) Generally, your offer should end in $1000 or $6000 increments.
Escalation Clauses (and how to beat them): Escalation clauses are commonly used in our current market. A buyer puts in an offer (typically at list price), but also adds that they will beat any other offer a seller receives by $x up to $y. And escalation clauses escalate over other escalation clauses, sometimes sending the price skyrocketing.
How do you beat escalation clauses without escalating to the moon? If you are in direct competition with another buyer, the two escalation clauses will combine to run the price higher. The other escalation clause is likely to be offering to beat your offer by $1000 or $2000. If you can, offer the seller some benefit that is worth more than that $1-2K that is not part of your price (and therefore won’t escalate the other offer even higher) They may take yours over the person escalating to the higher amount. The best example of this is a free rent-back for the seller. If this keeps the escalation clauses from being bid up and extra $5-10K it will be well worth it for you.
Remove the contingencies that you can remove: I wrote last week about appraisal contingencies. Sellers are looking for offers without them. It doesn’t do them any good to get a higher price and then get it knocked back down by an appraiser.
Sellers would also prefer to not have home inspection or radon contingencies. Removing these is risky for buyers, but may be worth it on certain houses in order to win the contract.
And then there is the “Sale of Home” contingency, where the contract is contingent on selling the buyer’s home. This just won’t work right now.
Larger Earnest Money Deposit: Earnest Money is money that you as the buyer send to the title company at the time the contract gets signed. It is money you could lose if you illegitimately end the contract. This money later becomes the first money you are paying towards the cost of the house or closing costs. Why not make it larger than your competitors? It’s not paying extra, it’s only putting money down earlier in the process. It gives the person selling the house the sense that you will follow through and raises your chance of winning the house.
Communication from Your Team: Listing agents are leary about their clients signing contracts with people they feel won’t follow through, or might “pull something” during the transaction. The buyer agent needs to do the little things like fill out the offer sheet completely and accurately (you’d be surprised!) and call the listing agent to assure them they are dealing with a professional, and to speak highly about you, the buyer.
Choose the right lender and loan officer. A reputable lender will make all the difference when the listing agent sees your offer. Make sure you get a Pre-Approval, not just a Pre-Qualification. Besides the Pre-Approval letter, your loan officer should call the listing agent to ensure the agent that they have looked at all of your income, finances, and credit, and that you are able to complete the purchase of the home.
These calls allow the listing agent both to feel comfortable with your offer and sometimes give your team key information to help you win the offer.
These tips should not be taken as across the board recommendations, but be considered as part of your toolbox to use in certain situations. There are no guarantees in negotiating, but these should help put the odds ever in your favor.