Bidding wars, high prices, how to compete?
Unfortunately for investors shopping for deals, prices have grown exponentially in the past few years. There’s many factors for this, but the most basic one could be the simplest: supply and demand. Although it may seem impossible, this will change eventually. But for now, we need to get used to bidding wars, so let’s explore ways we can win them until things cool off, and we (hopefully) start to see the market normalize.
These are some enlightening (sobering) statistics from February 2022 according to Realtor.com:
- Realtors are receiving on average 4.8 offers per home sold
- 48% of offers are above list price
- Cash offers made up 25% of homes sold
In the current bidding war environment you’ve got to put your best foot forward right away. Don’t hold anything back. There’s generally not a lot of back and forth negotiating like there is in a normal market. The only feedback you may hear from a seller or listing agent is “thanks, we went with another offer.”
Here's a few ways to make your offer stand out from the competition:
Price
To avoid bidding against yourself you could use an escalation clause. This clause states lets the seller know you’re willing to come up to a certain dollar amount higher than any other offer the seller receives.
Earnest Money Deposit
Put as much earnest money down as you can. If you are putting up a lot more than another competitor it shows you are serious about the purchase, and won’t walk away if something goes sideways later on in the process.
Financing
Cash is going to give you a much better chance of getting a house. If this isn’t an option and you need financing, your best bet is to waive as many contingencies as you can. This is a little riskier, but if you can waive the appraisal contingency a seller may see your offer the same as a cash one.
Inspections
A few years ago 14 days was the norm. Not anymore, try to get it done as quickly as possible. You could talk to an inspector before you get an accepted offer. How available are they, how quickly can you get the report back? Can you get this inspection period down to 5 days, or if it’s a great deal 0 days?
Closing Costs
The norm a few years ago was asking the seller to pay for some buyer’s closing costs. Not anymore, don’t do this if you want to compete. In fact, offer to pay for some of the seller’s closing costs instead.
Closing Date
Be as flexible as possible. If they want to close asap, do it. If they need 60 days, fine. And if you really want the property, offer to let the sellers stay in the house post closing for a period of time. You can hold some proceeds back in escrow to make sure they move out in the agreed upon time period. It will be less stressful for some sellers to move slowly and after having received the proceeds from the sale.
Love Letters
Write a personal note to the seller of how much you want the property and why. Make sure to include features of their property, don’t be generic. Just be careful with these, avoid any fair housing discrimination laws.
It’s a frustrating time to be a buyer for sure. We’re going to strike out on more properties than we purchase. But if your offer isn’t accepted don’t give up yet! Follow up with the agent, try to be a backup offer. Many buyers are outbidding themselves due to FOMO and getting buyer’s remorse. You want to be right there when they back out.
