Winning the bidding war
When Emma Sellers walked in the door of the three-bedroom contemporary home in Westborough, she fell in love immediately. But she wasn’t alone. The open house was mobbed, and before the day was out there were four offers on the table.
This might sound like an unlikely scenario, but it’s been happening frequently in communities where inventory is low and housing is in high demand. Like many home buyers, Emma faced the nerve-wracking prospect of entering a bidding war. In her case, the result was a positive one. Emma worked with her buyer’s agent, presented an offer they felt would appeal most to the homeowners, and won out over the other bidders. She happily moved into her new home.
Although this was her first home purchase, Emma was an informed consumer who took some crucial steps that helped her succeed. First, she worked with an experienced agent who guided her through the process. Second, she did her homework ahead of time and realized exactly what the best offer was she could present, without getting in over her head. Third, she realized that winning the sale might involve more than offering the highest price.
“People buy and sell on emotions,” says William G. Mullen, III, legal counsel for the Greater Boston Association of Realtors. “Don’t just assume that the highest priced bid is going to win. The more you can personalize the offer, the better. Present your strongest offer and try to connect with the sellers.”
Mullen makes an excellent point: “Terms come into play more than you’d think when choosing an offer,” he says. To that end, here are some handy tips for succeeding in a bidding war.
There are a number of steps to keep in mind when determining the right offer.
Do your prep work ahead of time. In addition to getting a preapproval letter, talk with your lender about how quickly they can close on a loan. This way if you need to be able to close quickly to win a bid you know what timeframe is possible.
Likewise, look at your finances carefully ahead of time so you know the maximum amount you’ll comfortable paying. It’s a good idea to think this through ahead of time, so you don’t get swept away in the midst of a bidding war later – a strategy that Emma Sellers took to heart. “My buyer’s agent recommended I set a cap to what I was going to bid on the house,” said Sellers. “You really have to set a line in your budget. Doing so protected me from overpaying.”
Look beyond the list price. What’s important is not what price the homeowners are asking, but what the home is truly worth. In some cases a home may be worth quite a bit more – or less – than the asking price. For example, an agent in Natick recently listed a home for sale for slightly below the home’s actual value to try to spur a bidding war and drive up the price. The strategy worked, and they actually ended up selling the home for more than $20,000 over the asking price. Alternatively, there are some homes that are in demand, but are not really worth more than the asking price.
If you’re considering making an offer on a home, talk with your buyer’s agent about what comparable sales have been so you have a good sense of the home’s actual value.
Find out what’s important to the seller. Your buyer’s agent should find out as much as possible about terms that are attractive to the homeowner. For example, perhaps the seller would ideally like to be able to stay in the home through the holidays or would like to rent the home back for a month until their children finish school. Knowing this can help you make your offer more attractive.
Help the sellers get to know you. Let the homeowners know a little bit about who you are and why the home is right for you. For example, I recently presented two offers to a listing client. The first couple was expecting their first child, and their agent had written a heartfelt letter on their behalf letting us know a little bit about them and why they wanted to raise their daughter there. The second couple presented an offer that was slightly higher, but we knew very little about them, other than that they planned to immediately gut the kitchen if they got the house. Our client chose the first couple’s offer, in part because it made her happy to think about them raising a family there since she had done the same.
Demonstrate the best financing. Buyers with a large down payment (at least 20%) are more likely to be considered seriously.
Eliminate unnecessary contingencies. If you’re shopping for a home in a competitive market, it’s prudent to sell your existing home first, as having a home sale contingency in your offer will make it much less appealing.
Consider how to handle the inspection. Offer a short timeframe for conducting your home inspection. Also, your offer may be more attractive if you’re willing to forgo credits for minor home inspection repairs. Or you may agree to a “go/no go” inspection where you have the right to back out of the purchase if you find a major defect during the inspection, but you waive the right to ask the seller for inspection credits. (Note: In most instances I would strongly advise against forgoing a home inspection altogether. This is an important protection.)
Sellers love cash offers. If you have the ability to pay cash for the home instead of financing it, this will make your offer very attractive. If you’re considering this option, talk with your financial advisor to understand any tax implications of doing so.
Have a real estate question? Contact Kyle Mann to learn more about buying or selling your home in the Boston suburbs. Mann is a Realtor with Gibson Sotheby's International Realty.