Takeaways:
- The most valuable information to know going into a bidding war.
- The way to win using the proper terms rather than by having the best price.
- How to save face after you lose a bidding war.
Are you tired of working hard to make an offer on a property only to be outbid by someone else? Unless you come in first, you don’t get paid, and your client does not get a home. Here are five ways to help you win the multiple-offer bidding war.
1. Get the most important info first
You need to learn the most important thing to know when there are multiple offers. As always, knowledge is power. Agents concentrate on knowing the market and gathering information about the seller.
That is useful, but the most valuable information is how many offers there are.
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If there are only two, you might get the property at a price that is below asking price. If there are five or more, someone is going to go well over asking price, so you need to also.
If there are 10 to 20, you better pull out all the stops. “Snipe” like you do on eBay by submitting your offer just before the deadline after finding out how many offers there are. Most bidding wars are won on price, so be the best price.
2. Learn how to win on terms, without the best price
I represented a bank selling a property, and there were six offers. I was putting the offers into Equator, and I had just entered the fourth one.
The asset manager accepted it immediately without waiting for the others. I called to object because I have to present all offers. She said I should enter them all, but she had the clear winner no matter what price the others offered.
The clever buyer had offered a price that was well over the asking price, but the winning feature was the earnest money. You probably thought you cannot win with earnest money, right? He had offered the entire price, less one dollar, as earnest money.
After the 10-day inspection period, the buyer’s earnest money was forfeitable. The most important feature of an offer for the seller was certainty that the sale would close. These terms guaranteed that it would close.
So, if you learn that the seller has children in school, have your offer include a closing date just after school ends so the kids can finish the term at the same school.
Family values for the children might be more important than a little more money. Find out what the most significant term of the offer is and give it to the seller.
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3. Win before the war starts
Before the seller receives any other offers, write up an offer that fulfills all the sellers’ dreams. Offer more than the asking price, let the seller pick the closing date, provide ample earnest money, and say something positive about minimal repair issues and anything else that you learn that the seller wants.
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Put a short time for acceptance of the offer. Most importantly, add a condition that your offer will be withdrawn if the seller considers any other offer. This tool rarely works, but when it does your buyers love you.
4. Use an escalation clause, if your brokerage and state law allow it
If the asking price is $300,000 and there are 10 offers, an escalation offer would start with a price of $316,850 and then say, “Buyer will increase the sales price to $5,000 over any other legitimate offer, up to a maximum price of $335,000.”
Before you submit the offer, call the listing agent to make sure he is familiar with escalation clauses and that he will honor it. After you win the war, verify that the other offer you had to outbid is legitimate — the buyer was qualified and it had terms that were possible to obtain.
If the other offer was someone who needed a USDA loan on a property that did not qualify for a USDA loan, you only have to outbid the next highest legitimate offer.
5. If you lose the war, save face
If you lose, your buyers will probably question your ability. Show them that you have the right tools by getting them to sign a backup offer.
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The backup offer says that if the first offer terminates, you immediately have a binding contract on the terms of your backup offer. The seller does not get to reopen the bidding war.
Also, you control the seller, but the seller does not control you. You get the sellers’ house if the current offer terminates. However, you can go shopping, and if you find a better home, put it under contract and terminate your backup offer.
I hope these tips help you win bidding wars so that your buyers get a home, and you get paid.
I plan to write regularly about real estate negotiating. So, send good negotiating questions to tim@TimBurrell.com and put “Inman Negotiating” in the subject line.
Tim Burrell has been a Realtor since 1979, currently with Re/Max United in Raleigh, North Carolina; he solves agent’s negotiating problems at NegotiatingConsultant.com.