Win the Bidding War
A "bidding war" occurs when there are multiple bids on a liasting from competing buyers.
Many listing agents will not even accept offers until after the first weekend on the market and then they present all offers at once. This marketing technique often results in a bidding war on any property that is reasonably priced. However, if your offer is spectacular, you might try to submit it immediately after seeing it but before the "deadline" the listing agent has set. If you do so, have it expire within hours of presentation. I’ve often had sellers accept an offer like that even though they and their agent had planned on delaying the review of offers. More typically, the listing agent will collect, analyse and present multiple offers after a deadline they have set forth on the listing. It is possible to ask the listing agent if there are other offers. If you feel there is a bidding war, don't make an offer from which you plan to negotiate, as you may never get a chance to do so. Often sellers will go back to the best few offers and ask for "highest and best". "Highest" refers to price and "best" refers to the terms. But often one offer will stand out and other buyers will never get a chance to come up in price or adjust their terms.
Here are 11 tips on how to become the most desirable buyer you can be – and create a compelling offer that wins the multiple offer war.
1. Cash is king - Investors have been snapping up homes to flip or rent, and they usually come to the table with cash. Sellers love all-cash offers because the sale is less likely to fall through before it closes. Bring as much cash to the table as makes sense for your personal financial situation. Some buyers are certain they will get a mortgage so omit a mortgage contingency. This is not actually a cash offer but sellers perceive it that way and favor this over one with a mortgage contingency.
2. Start 4 months ahead - If you can’t pay cash, you’ll need to get a mortgage. Three or four months before you shop for a home, check your credit reports. That will give you time to dispute any errors and take short-term steps, such as paying off debts which will improve your credit score and get you "mortgage ready". (Your score may also impact the cost of your loan.)
3. Get pre approved – Then get a bank’s pre approval. It will show sellers that a lender has verified your income and credit score and determined you can afford payments on a mortgage for a certain amount. The best type of preapproval is when the buyer is all set and only the property must be evaluated (appraisal). If possible, offer to make a larger down payment if the appraisal comes in below your accepted offer.
4. Try to offer a 20% down payment - Any less than 20% is going to put you at a disadvantage. If you are putting less than 20% down, it is even more important to make the other aspects of your offer strong. There are ways to stretch to 20%, either by having the seller pay some or all of your closing costs (in which case you must offer that amount over a reasonable offer) or getting some cash as a gift or borrowing from your retirement fund.
5. Have all your paperwork in order – When submitting your offer, be prepared to show your proof of funds (for cash offers) or a pre-approval letter (for the mortgage). If cash is coming from an equity line on another property, close on the equity line before you put an offer on a house so you will have "proof of funds". If the funds are coming from the future sale of your current property, supply a redacted contract and pre-approval for your buyer so that the seller feels assured that your property will indeed sell. You may need your buyer's permission to do this. Remember to delete all account numbers on your proof of funds and also on your binder or deposit check.
6. Forget lowball offers, make your best offer now - You may only have one shot to get it right, so make your best offer! Base your offer on recent sale prices of comparable properties in the neighborhood so that it will pass muster when the property is appraised. If you hold back, thinking you’ll sweeten the offer on the second try, you may lose the property to another buyer.
7. Keep contingencies reasonable and short - Some buyers receive advice to drop all contingencies. Bad move! Most sellers prefer offers with no contingencies, but you probably can’t afford to forgo the protection that contingencies provide if you want to cancel the contract. Offset a financing contingency with a strong preapproval and a strong earnest money deposit. If possible, assure the seller that you will still be purchacing even if the appraisal comes in below sales price. In MA, buyers are guaranteed the right to do an inspection so this will be an automatic contingency. You can add to it a sum below which you will still purchase and not renegotiate.
8. Find out what is important to the seller and try to be accommodating. For example, if the house has a lot of junk in the attic and basement and you know you will be doing a remodel and getting a dumpster, you can offer for the seller to leave whatever junk they don't want and not have to clean the house. Selling and moving is a very stressful thing and if you can eliminate some of that stress for the sellers, they may be partial to you.
9. Find out the seller’s timeline and offer to meet it – Express your willingness to work with the seller’s timetable. If you can and if the sellers want to remain in the home for a while after closing, offer them a “rent back” (known as a use and occupancy agreement) which means that you will be their temporary landlord. This is a legal arrangement, and you’ll need to work out the details with your attorney. Lenders usually allow for you to be able to do this for 2 or 3 months. Additionally, if the seller is closing on the 5th of a month, you can offer to close on the 4th and let them stay in the house until the 6th. Eliminating stress for the seller is a powerful negotiating tactic.
10. Finally, make sure ALL the required paperwork is submitted together, professionally prepared and easy to understand. You wouldn't want to lose out because you neglected to submit something or something got lost in the shuffle. Listing agents don't even want to work with an agent who was too lazy or too incompetent to put a complete offer package together.
I hope you have found this list helpful in planning to win a possible "bidding war".