How Can Buyers Win in This Market?4/5/2021
In this seller’s market, where there are multiple offers on new listings within the first day, many buyers are bidding and losing on several properties before finally “winning” a new home. These buyers find themselves asking, “what do I need to do to Win?” Here is quick run-down of several strategies our agents have used to help their buyers win the bid. The graph at the bottom of this post summarizes these strategies and their pros and cons.
Know what the seller really wants: Ask your agent to communicate with the listing agent to see what is most important to the seller. Sometimes a seller wants more time to move and flexible or longer possession after the closing may be more attractive than a higher offer that needs immediate possession. Any information about the seller’s wishes can work toward giving you an edge.
Make your best offer first: Buyers should NEVER assume that a seller will come back after the initial offer round and allow buyers to increase their offer (known as a “highest and best” situation). Buyer’s should ask themselves, “If someone beats me by $1, will I wish I had offered more?” If the answer is yes, consider making a higher offer.
Understand how your financing may affect your offer: While FHA and VA financing can be very attractive to a buyer with lower down-payment requirements, they come with appraisal requirements that are more strict than conventional or cash offers. If you do not qualify for conventional financing, consider offering to cover any lender-required repairs up-front to eliminate the seller’s concern about appraisal issues.
Cover the appraisal difference: Bidding wars drive up the price, sometimes higher than the actual value of the home. Sellers can be hesitant to choose the highest offer if they don’t think the house will appraise at that value. Offering to cover any or some of the difference between the purchase price and appraised value can mitigate that concern. A buyer who chooses to do this, though, should be aware that they are paying above-market value and might not be able to get their money back when they sell.
Cover the seller’s closing costs: It has become very common for buyers to ask sellers to pay their closing costs. What is less common is a buyer offering to pay the seller’s costs. These costs could include transfer taxes, title insurance, Realtor fees and closing agent charges. Buyers could offer to cover some or all of these seller costs.
Consider an escalation clause – If you don’t know what this is, read our January 28 post. These clauses allow the buyer to add an escalated price to compete with possible higher offers.
Consider waiving inspections or doing a “walk-through inspection” – We will go on record now to state that we do not recommend a buyer purchase without proper inspections. However, the inspection contingency is a big hurdle to the seller that they would rather avoid. If a buyer is familiar with home issues and feels comfortable taking on any repairs, they may choose to waive the inspection. Another option would be to bring someone knowledgeable with them to the showing who can give them a heads-up to potential issues before they make an offer.
Hold the offer as a back-up: Offers made during a bidding war are made in haste and the winning deal may not always close. Buyers should consider asking the seller to hold their offer as a back-up in “first position” if the accepted buyer terminates during the transaction. This can be a complicated situation. The buyer’s agent should be sure to include a clause allowing the buyer to back out if they find other suitable housing.
As we said, these are strategies that our agents have used to win the bid. They all have consequences to consider and should be done with the guidance of an experienced agent. We would love to hear if you have additional strategies to share. Just click on the FB link on our homepage to share. And as always, if you have any questions, we are here to help.