How to Avoid a Bidding War
As a buyer in today’s market, you are likely to encounter at least one multiple offer situation when presenting your offers. In many neighborhoods and community in the Chicago area, the supply of homes is tight in relation to the number of buyers. Even in those communities where the supply of homes is less tight, you may run into multiple offers for homes that have been rehabbed or have unique features. There is also the phenomenon where a home has been on the market for a while and then all of a sudden 2 or 3 people suddenly decide to buy at the same time.
For buyers who are just entering the market or for those who have lost out on one or several properties, here are a few tips for putting your best foot forward and successfully navigating a multiple-offer situation.
Work with a Professional and Know the Market
Working with a real estate professional who is experienced and who is an expert in the market can be a crucial factor in determining whether you will be on the winning or losing end of a multiple offer situation. You want to work with an experienced realtor that is familiar with price trends and market activity in the area where you want to buy. When considering what price to offer, your realtor will look at other homes sold in the neighborhood to determine the market value for the home. You want to make sure that the home is not overpriced. You also want to make sure you are not offering a price that is more than the market value.
Come in Strong Upfront
If you know, or suspect, that you’re entering a multiple-offer situation, you’ll want to come in strong from the very beginning. Some buyers try to come in low initially as a negotiation strategy. However, if the property is priced well and is expecting multiple bidders, you may not want to risk having the seller disregard your offer immediately for not being a serious contender.
The seller is not obligated to counter back on all submitted offers (except for some foreclosures). If your offer is significantly lower than the other offers submitted, he may just reject your offer and limit negotiations to the stronger offer(s).
The other risk of not coming in with a strong offer upfront is that other offers may be submitted while you are negotiating. Until your offer is accepted and signed by the seller, other offers may be considered.
Come In Clean and With as Few Contingencies as Possible
Make your offer as clean as possible and package everything to be submitted together in a coherent way. You don’t want the seller or their agent to have to chase you for paperwork, signatures or proof of funds. You also want to be timely with things such as delivery of earnest money.
Contingencies such as having to sell your current home before closing or a longer closing or inspection period make your offer less competitive. However, if you really do need to sell your home first to purchase a new home, include it in your offer. It’s not just about winning the bid, you want to close.
Be Flexible With the Seller’s Needs
It sounds simple, but many agents and their buyers don’t take advantage of this simple step. Another easy way to make your offer stand out above the others is to have your agent find out what terms the seller is looking for and meet those needs.
For example: Do they want a long escrow period because their next home won’t be ready yet? Are they requesting a leaseback (which allows them to stay in the home for a period after closing)? Do they want to close quickly because they have already purchased and closed on a new property? Price and financing are not always the number one concern to a seller, so meeting their other terms is another way to make your offer more attractive.
The seller may also be concerned about being asked to make a lot of repairs. Would you be willing to submit your offer “as-is”? You would still be able to have a home inspection done but agree not to ask the seller for repairs. This is basically how it works when purchasing a foreclosure. The seller won’t be agreeing to repairs but you still have the protection of doing a home inspection.
Finally, requests for closing contributions toward buyers closing costs reduce the net proceeds for the seller. Often, buyer’s need the seller’s contribution in order to be able to close. However, an offer without this request is a stronger offer. Again, though, if you don’t have the funds to cover both the down payment and closing costs, include the request. It’s not just winning the bid, you want to be able to close.
Don’t Get Too Caught Up in the Bidding War
It’s easy to get caught up in the process when you’re vying for a property with other buyers. Try to stay level-headed and make sure that you are comfortable with your offer and terms. This is helped by knowing the market value and being clear on the maximum amount you are willing to offer. You also want to be clear on what terms or contingencies are deal breakers for you. You don’t want to get locked into a contract where you end up feeling that you overpaid or the terms are unacceptable or unreasonable
Get in Backup Position
Sometimes, despite your best offer, you still lose out to a stronger offer. Ask the seller if they would be willing to accept a backup offer. You can put a limit on the life of the backup offer. If the buyer decides to back out or is unable to get financing, you’re next in line.
You may lose out on a couple of deals before finally getting an accepted offer. In a tight market, it’s just a reality of today’s home buying experience. Sometimes it takes a couple of lost deals to understand the best ways to position themselves in a multiple offer situation. An experienced realtor can help make this process less stressful. Stay positive, focus on the big picture and keep your goals in mind.