3 Ways Of Beating Those Bidding Wars
You’re house-hunting for your client, and you’ve found the perfect property.
1. Have The Highest Down Payment
If you’re in a position where you can pay for a property with an all-cash deal, take that opportunity and run with it. All-cash deals are a seller’s dream because it forgoes the hassle of underwriting and all the extra documentation that comes with mortgages. It also erases the possibility of buyer financing fall-throughs, because the buyer quite literally can put their money where their mouth is.
Most people can’t pay for a real estate property in full, however. An alternative to this would be possessing the highest down payment out of all your bidding war competitors. The highest bidder isn’t always the one who gets the property. Don’t back down if another buyer tries to make a higher offer, especially if they’re making a down payment that’s significantly lower than what you’re willing to give.
2. Write A Letter To The Seller
That’s right. Grab your stationary and stretch those wrists. Get ready to write a snail-mail letter to the seller about their property that you can’t stop thinking about. Sellers often form sentimental attachments to their homes, so let it be known that you’re already starting to feel that same attachment to your potential seller’s home, too.
In the letter, mention particular things you liked about the home. Maybe you envision yourself planting a garden in that beautiful backyard space, or cozying up to that fireplace in the winter. You should also weave details about yourself (and your family, if applicable) in the narrative. It makes the seller feel more connected to you, as you’re presenting yourself as a human and not just a bidding number.
This letter is also an opportunity for you to justify why you may be offering a lower price than your competition. You never know when your seller is an empath who understands your circumstances. In fact, they may have even been in your same exact position at one point, too.
3. Take Advantage Of Escalation Clauses
Your first bidding offer is not a be-all-end-all. However, you might be the type of buyer motivated by anxiety when competing with other bidders. An escalation clause is a great way to prevent yourself from putting yourself in a financially compromising situation caused by panic-buying. It also shows you’re serious about a particular property.
Escalation clauses are statements in a real estate contract that show the extent to which a buyer is willing to go in order to secure a property. It lists their initial bidding price, the maximum that they’ll pay, and the increment that their counteroffer should increase by should a competing bidder come in with a higher offer.
So let’s say you’re eyeing a house that you made an initial bid of $750,000 for. You can include an escalation clause stating that your maximum offer will be $805,000, and if another potential buyer makes an offer, you’ll one-up them by $5,000 as long as it doesn’t break your maximum. So if another potential buyer bids for $760,000, you’ll counter with $765,000.
4. Be Geographically Aware
A major reason why you could be struggling in bidding wars is that you’re looking in a highly competitive area. As of 2022, we’re currently in a seller’s market, meaning that real estate is relatively scarce, so sellers can easily increase prices in their favour. Couple that with a hot location– such as NYC, San Francisco, or Miami–where many people are trying to snag whatever they can, and real estate buying is a real challenge.
In fact, you could be following all the other tips on this list and still struggle if your location is super-competitive. Recognize that it’s not all on you, and it’s mainly the environment around you. Consider less competitive areas in the location you want to be in. Be persistent, but also be prepared for a deal that may require you to make some compromises.
Future homebuyers will soon encounter a housing market with a little more equilibrium. Currently, there’s a lack of housing inventory, which is a reason why real estate is more scarce than usual. But more homeowners are planning to list their homes, creating a more positive outlook for homebuyers in 2023.
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