How To Win A Bidding War In A Seller’s Market
2021 has not been your ordinary real estate market. Near record low interest rates, major economic stimulus, and record low inventory have all culminated into some of the wildest market conditions San Diego has seen. As a buyer right now, you will almost certainly face multiple offers—so how do you come out the victor in a bidding war? Here are six ways to stand out in the crowd and come out on top!
STEP ONE: Select The Right Agent To Represent You
Selecting an agent that has the energy to represent you in a challenging market, a commanding knowledge of your specific area of interest, and the ability to quickly build rapport with listing agents will help you succeed in this ruthless market. Some buyers like to engage directly with a listing agent, but this could backfire in a market where even the most experienced listing agents are being overwhelmed by the number of buyer’s agents who have offers ready in hand. Having the time to qualify such a buyer and verify their information and then write an offer on their behalf while trying to control a flood of offers and phone calls could be seen by some as an impossible task, and one that ends up being referred out to a different agent or licensed assistant. Hiring a dedicated buyer’s agent will be critical to gaining access to multiple listings with limited showing windows, getting up to speed on your specific needs, and writing crisp, compelling offers at a moments notice!
STEP TWO: Understand The Market And Be Prepared To Engage It
To have a fighting chance in this market, you need to be clear about your priorities. When inventory is abundant, most buyers shoot for getting 85% of what they want in a home. With inventory experiencing drought conditions, buyers need to search the market daily, and after their showing they only have a limited time to “think on it” before needing to write an offer. The most compelling homes in the hottest markets are going for well over 100%+ of asking price with some receiving 50+ offers! Being prepared to engage with this market means being realistic, focused, and resilient. Accepting market conditions, being decisive about what you want, and acting bold to prove you are the one most motivated and willing to close the deal is what it takes right now. Only the boldest willing to compete in a multiple offer arena will succeed.
STEP THREE: Have Your Finances In Exceptional Order
Writing a winning offer that can compete with 5, 10, 20+ offers requires a layered approach. Just coming up in your price, or trimming timelines won’t cut it. If you are pursuing conventional financing, can your lender underwrite the loan and issue a lender letter with underwriting approval? As for your down payment, having an account of liquid cash for your down payment ready to go is a must. Better yet, consider having some extra cash on hand to cover the difference between a prevailing offer price and the appraisal value if you plan to bid significantly over ask. To really stand out in the crowd, ask yourself:
Would you be willing to increase your earnest money deposit to more than 3%? How about offering an additional deposit applicable towards your down payment?
Would you be willing to pay the sellers closing costs?
Would you be willing to offer the seller up to 29 days to stay in their home after the close? How about at no cost? Could you offer the seller the ability to stay in the home longer than that?
Being organized, prepared to make tough decisions, and bold moves might be the difference between being successful, or not, it is that competitive.
STEP FOUR: Know Your Contingencies And Transaction Timelines
In the hottest of markets, some buyers have the ability and/or willingness to waive or dramatically cinch up their timelines and contingency periods. Let’s start with your scheduled close of escrow. Typically homes are bought and sold in 30 days. Within the 30 day home purchase time frame, there are contingencies in place that give the buyer the option to cancel or proceed with the agreement and they come with general, preestablished timelines. For the inspection and appraisal contingencies they default to being removed by day 17 and the loan contingency defaults to being removed by day 21. But in this market, you better believe buyers are coming in lean and mean and offering to close in less than 30 days. For cash buyers, this is a moot point, enhancing their position further! For buyers perusing financing, teamwork and communication with your lender will make all the difference. Instead of having 17 days to complete the appraisal, can your lender trim that down to 7, 10, or 14 days? If you’re wanting to close in 21 days, can your lender deliver your final approval and deliver funds on day 14, or 17? As far as the inspection contingency timeline of 17 days, buyers have that on the chopping block too. For the head-over-heels buyers in love with a home wanting to be as competitive as possible, consider tightening up the inspection contingency timeline too. All the more reason to work with an agent competant at scheduling and with robust industry partnerships who can help you succeed under tight timelines is key.
STEP FIVE: Build Your Toolkit
There are several tools dominating this multiple offer environment. The most buzz worthy of them is the escalation clause — that is language inserted into the offer that automatically improves a buyers chance of succeeding against the most competitive offer. Increased deposits are another tool available and can communicate a strong show of faith. While your down payment is due at the close of escrow, consider putting 10% down as earnest money, or—to be even more competitive—provide the rest of your down payment, the additional 10%, once contingencies are removed or after a certain number of days. Being flexible with your move in date and allowing seller’s the ability to stay in place for 30 days, or offering them a rent back of more than 30 days can also take the pressure off of a seller, increasing your odds of acceptance. Each of these tactics come with advantages and risks, so be sure to consult with your Realtor to be sure you understand the potential consequences associated with any choices you make.
STEP SIX: Consider The Backup Offer
In this market, we are seeing more homes fall into the “Active Under Contract” status, meaning that the sellers have accepted a contingent offer and the buyers have to sell a property before they can close on the home they want to purchase. A seller who accepted such an offer can still accept back up offers, allowing that seller to have another buyer in the standby position should something happen with the buyers down leg property they are selling. Submitting a backup offer has its drawbacks, particularly if you are on a tight timeline, but it could be the right approach for certain circumstances, and with a little luck, it could really work out in your favor!
I Leave You With A Final Thought…
This is a tough market, and it’s pushing a lot of buyers to the sidelines! That being said, many buyers are really motivated to buy at this time, investors included! For those pushing full steam ahead, it’s worth preparing yourself ahead of time with boundaries and limitations so that you don’t find yourself overextended. As a buyer, it’s key to buy when the time is right for you. While it’s very important to be aware of market conditions it’s also important to pull back and maintain perspective as the market is always in flux. Buying a home should be considered a long term investment, and should be treated as such. Being mentally and financially prepared helps you maintain perspective and remain in the driver’s seat while in pursuit of your real estate goals. If you unsure whether or not owning a home is right for you, or for personal financial advice, I recommend speaking with a Certified Financial Planner who will be able to help you evaluate financial decisions based on your personal circumstances.
Please don’t hesitate to give me a call with any questions—I’m ready to help you navigate this market and share with you all that Willis Allen Real Estate and I can offer you!
-M.D.