Bidding wars are once again the norm in Danville and all along the 680 corridor. Here’s how to win a bidding war without getting ripped-off.
Imagine your dream house pops up for sale. You rush to see it and want to submit an offer. Unfortunately, ten other people are doing the exact same thing. Here are the steps you need to take to have the best chance of winning a bidding war without overpaying.
Sometimes buyers lose a bidding war because there is one, really desperate buyer who offers a crazy-high price right out of the gate. Usually theses are the buyers who have lost out on so many houses that they are content to overpay just to be done. In this case, there isn’t much you can do. Basically, sleep well knowing they are the ones who got ripped-off, not you.
Most of the time, however, only two or three of the ten offers are ever really in contention. These are the buyers that get counter offers. Your goal with your initial offer is to “make the cut” and be one of the buyers to receive a counter.
Step 1: Have Your Ducks In A Row
Be non-contingent. If you have to sell a house in order to buy, you aren’t going to win. Sorry. Sell the house first and then look for a house. If your market is strong enough, try selling and asking for a 30-90 day rent back to give you time to find the right house.
Be fully-approved by your lender. Not only have they reviewed your application, but they’ve taken the additional steps of pulling credit and verifying employment and assets. The more work you and your lender to up front, the stronger the pre-approval letter they can write in your behalf. It makes a difference.
Know the area. Know the schools, the HOA, the taxes, and time the commute. Know for sure that this is the neighborhood, price range, and house you want.
Step 2: Have the Right Agent
Yes, it makes a difference.
Just as the sellers are looking for the right buyers to be in contract with, their listing agent is looking for the buyer’s agent that they want to be working closely with for the next month. If your agent is well-spoken, experienced, local, and respectful, they are likely to get very helpful guidance from the listing agent. If your agent speaks poorly, doesn’t know local customs or procedures, or asks dumb questions, the listing agent is likely to give them just enough information to be fair, but not win.
Now, imagine you’ve “made the cut” and are one of the final two or three buyers in consideration. Assuming price and terms of all buyers are similar, the quality of your agent could make or break you. At this point, the sellers care most about picking the buyer who is most likely to close and not cause them additional headaches. Better agents have already set their buyers with proper expectations. And better agents are going to be better at preventing molehills from becoming mountains during escrow.
If everything else is similar, listing agents will often tell their sellers something like:
“I don’t know anything about agent 1. Agent 2 seems okay but they asked some weird questions… I’m not sure how they would respond if anything weird came up during inspections. Agent 3, however, seems like the really know their stuff and I think they would really do a great job to help get the deal closed. They seem like the best to work with…”
I recently one a bidding war for my clients because the sellers found my personal facebook page and decided I was a person they wanted to do business with.
The truth is that, of the ten offers, five probably never have a chance because of the way their agents presented themselves.
Step 3: Make The Sellers Like You
The sellers can choose to sell to whoever they want. Oftentimes, it’s the buyers they like the most, on a personal level, that win the house.
Be respectful, classy, and easy-going. Act like you’ve “been there before” and be cool, even if inside the stress is driving you insane. With every word in your offer, every email, and every conversation your agent has with theirs, come off as likable as you can.
Also, your agent needs to call the listing agent to clearly understand the seller’s wishes and the bidding rules. They need to ask:
“When are offers due and how would you like ours delivered?”
“Aside from price, what are the sellers looking for in an offer?”
“Where are the sellers moving to? Would they appreciate any rent-back or even a few ays after close to move out?”
“Is there a disclosure package available?”
If the seller’s need a rent-back, give it to them. If they don’t want to fix the deck, don’t ask them to. Simple stuff, but lots of buyers’ agents don’t even ask.
Here’s how being likable helps… The listing agent may call your agent and say:
“My sellers really want to work with your buyers, but you aren’t quite there… would they be willing to come up to X and get this deal done?”
The likable agents with likable clients get those phone calls.
Step 4: Write an Acceptable Offer
Write an offer where the only thing the Sellers would ever decide to counter might be price. With good communication, the listing agent should be able to guide you on just about everything else.
Here are a few of the key parts to get right:
- Give the sellers any specific requests they have made. (because most other bidders will too)
- Close date: 30 days or less.
- Short inspection contingency period. 7-10 days at most.
- Loan contingency should be removed within 7-10 days, including the appraisal contingency if their is one.
- If you can afford it, don’t have an appraisal contingency.
- All transaction costs (escrow fees, HOA fees, taxes, etc.) should be per local custom.
- Don’t ask the sellers to pay for any inspections.
- Don’t ask the sellers to commit to making any repairs.
- Let the listing agent pick the title company.
- Have a deposit of 3%
- Submit a complete package: Offer, any signed disclosures, pre-approval letter, proof of funds, and a personal letter to the sellers.
Regarding price, you and your agent need to determine how high you need to bid in order to at least be among the leaders. Maybe it’s $10,000 over asking price. Maybe it’s $50,000.
Don’t be one of the buyers who will offer list price based on principle and expect the sellers to counter them back. You have to appear to be enthusiastic and easy to work with. Offering just full price can give a bad impression to the sellers.
Of the ten offers, half will be at or below list price and never have any chance of winning.
Step 5: Considering the Counter Offer
If you’ve taken the steps above, you will almost always get a counter offer. In bidding wars, the sellers make what is called a “multiple” counter offer. This means that, even if you accept, the seller has to accept your acceptance before you are legally in contract. And, the listing agent should be happy to tell you how many buyers received counters.
As the buyer, you have four options: walk away, accept, counter back at a lower price, or counter back at a higher price. Here, a great buyers’ agent can really help by getting as much guidance as possible from the listing agent.
Imagine in our example that, of the ten original offers, three received counters. Of those three, one is likely to either walk away or counter back at lower terms. The idea of a bidding war is stressful and buyers to get flustered and run sometimes. Another buyer is likely to just accept the counter. The third buyer (you) has a choice of either accepting or countering higher to win.
Generally, if parts of your offer are weak, such as a low down payment, out of area agent, or needing more time for contingencies, you may need to counter higher to win. But, if you have a strong local agent, strong approval, strong down-payment, and your agent has great report with the listing agent, then maybe you’ll with by simply accepting.
Remember as well that the sellers don’t have to give all buyers the same counter. Sometimes sellers will give an easy counter to their safe buyer. (Think of applying to three colleges, including one that you know you’ll get into just to be safe.) If the counter you receive is too easy, then you are probably their safe buyer and should strongly consider raising the price.
Step 6: Perform
So you’ve handled the counter properly and the seller has accepted your offer. Congratulations. But know that this is still different than a normal transaction.
In a normal, one-offer, transaction, the buyer has a lot of power. If something goes wrong or an issue comes up during an inspection, it is often in the seller’s best interest to correct the problem.
In a bidding war, however, there are several unhappy, losing buyers who would happily swoop in and take your place if they could. If a major issue, like a foundation problem, comes up, then the seller has to get involved. But as minor things come up, you as a buyer are just going to have to accept them if you still want the house. Don’t expect the seller to credit you back $2,000 to fix the electrical problem. They would be better off just selling to someone else.
In other words, expect that there will be some minor issues and budget for them when you make your offer. It’s very reasonable to expect to spend .5%-1% of the purchase price on repairs.
Finally, don’t let the natural feelings of buyer’s remorse take over. It’s natural to second-guess yourself and the price you paid. Just remember that a house is worth what someone will pay for it, and the losing buyers would probably be happy to take your place. Point is, as long as you weren’t too much better than the other offers, you didn’t get ripped-off.
Good luck out there. And, if you are in the Pleasanton-Danville-Walnut Creek-Orinda stretch, I’d be happy to help.