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Do you recall the days of preparing your offer on a property only to learn there were already several offers on the table? Well, those days are back in some markets according to a recent Redfin study.
According to Redfins’ 2013 Report on Bidding Wars, the return of the bidding war may have peaked in 2013, but it’s not over by far. Redfin completed a study of its realtor sales in 19 US markets and found that in April 2014, 37.9% of homes sold above asking price compared to 22% during the previous quarter and 44% just one year prior. The top three markets with homes selling for more than asking price due to bidding wars were all found in California (San Jose, San Francisco and Los Angeles). Homes in these three cities saw more than 80% of their sales close over the asking price while other US cities such as Seattle, Baltimore, Boston and Washington made the list with impressive numbers of their own.
Bidding wars can be challenging for buyers especially because there’s no way to be certain your bid will be the chosen one. Nevertheless, there are some ways in which you can ensure your bid gets the seller’s attention, if not an acceptance. Here are four of the ways in which Redfin says buyers made their offers stand out among all the rest.
Cash still rules in most markets, most of the time. Cash offers in all markets were 28% more likely to be accepted over all types of financed offers. In fact, one seller in the Miami market accepted a cash offer which was $100,000 less than another, financed offer. Sellers are a little more sophisticated these days and know that a buyer who has to depend on lender financing may never get to the closing table. Cash deals, with proof of funds, translates to a quick and easy closing for sellers. It’s very difficult to compete with a sure thing regardless of price.
Pre-Inspection is a great idea and another way buyers were able to seal their deals over others. It lets the seller know you’re serious even before making an offer. Also, if the inspection goes well, the seller will know in advance that there won’t be any ridiculous demands for repairs or repair-related concessions. Any requests the buyer has, if handled gingerly, can be considered before other buyers ever get their first tour, in some cases. Of course, conducting a pre-inspection requires having immediate access to listings as they are placed on the market. This is where a relationship with a real estate agent or two comes in very handy. In a competitive market, you should have your realtor’s number on speed dial.
A very popular (albeit risky) trick among many realtors and savvy real estate buyers is to forego contingencies. Buyers who opt for the pre-inspection have no need for an inspection contingency, but would be wise to forfeit the finance contingency as well, whenever possible. Of course, cash buyers don’t have this issue and it is risky for those dependent on lender financing. Whenever a buyer has to depend on a mortgage loan and cannot waive the financing contingency, consideration should be given to shortening the length of time for the loan commitment period. Similar to the relationship with a realtor, it is also vital to have a relationship with a great lender who has a reputation for getting deals done efficiently as time is of the essence in these deals.
The power of the so-called love letter might surprise some that it works so well. Apparently, sellers love to hear about the people who will be living in what they still consider their home. Additionally, those letters of adoration and praise about how well the home was maintained and the reasons the home is so special to the buyers all effectively pull on the seller’s heart strings in ways that pay off for the buyers. Experts in this area say buyers should not be shy about why they want the home above all others. Investors should be careful not to mention their intention to flip or lease the home however, as sometimes sellers are so emotionally attached that having that kind of information could backfire on investors. Similarly, when the seller is an investor, the love letter is generally less effective, as the investor does not have the same attachment to the home as a homeowner occupant does.
Executing any one of these tactics should get you closer to acceptance in a bidding war, but executing more than one or all of them could seal the deal over all other bidders.
Tell us your bidding war stories. What strategies have you used effectively besides the ones mentioned here?
