How to Win a Bidding War

On June 10^th, the LA Times ran a story on the front page of paper that detailed the fierce competition that buyers are experiencing during the home buying process. It’s official – it’s not gossip, and it’s not speculation: this is happening, people! Bidding wars are back, so buyers need to understand the process and have some strategies in place. I have personally had a lot of success this spring with multiple offer situations, so here are some tips that have helped my clients:

Low Ball offers are a HUGE waste of time. Price it right!

If you know there are already multiple offers on a home, and your agent feels that it has been priced appropriately, don’t mess around with low bids. I recommend starting at least at the asking price, if not above.

Offer a Strong Financial Package

If you have the ability to put 20% down, it will greatly strengthen you offer. Loans that are more than 80% of the purchase price are considered “riskier” by lenders, so they require the buyer to pay private mortgage insurance in addition to their monthly payment. Because of this, sellers often feel that buyers who put less than 20% down are more likely to have their loan denied during the escrow process. Make sure that you submit a bank account statement with your “proof of funds” so that the seller knows the down payment money is actually there and don’t even think about submitting an offer without a letter of preapproval from a lender.

Sweeten the Deal

There are a lot of other conditions in the offer that you can cater to the wants and needs of your seller. Find out what their preferred length of escrow is and put it in your initial offer. Buyers have three “contingency periods” during escrow: buyer’s investigation, loan, and appraisal. Sellers would prefer that you keep these periods as short as possible. Talk with your lender to find out how short you can go for your loan and appraisal and consider cutting your buyer’s investigation to 7 – 12 days. In extreme bidding war situations, buyers sometimes agree to pay for items that are normally covered by the seller – like the termite repairs, city retrofitting requirements or HOA fees. Make sure that you discuss all options with your agent and that you understand exactly what you are agreeing to pay for before moving forward.

Introduce Yourselves

Sellers often want to know a bit about the people who are offering to buy their home. Writing a short letter that lets them know a bit about who you are can go a long way, especially if the sellers have been in the home for a long time and are emotionally attached to the property.

Choose a Professional Agent

There are a lot of agents out there who will turn in offers that have been scribbled on a car hood with incomplete information. The overall presentation of your offer can go a long way to helping you stand out in a crowd of other offers. I recently helped some clients beat out another offer that was higher than theirs, and the agent told me that she picked us because she liked the way I wrote the offer. Make sure that you pick an agent who respects the professionalism necessary to do this job well!

Bidding wars may complicate the process, but if you understand the tools you have to available to make your offer more desirable, you can get a leg up on the competition. If you have any questions about the offer process or the market in general, feel free to contact me!