Tips for Winning a Bidding War in a Hot Home Market
Trying to distinguish your offer on a home in a high-stakes bidding war? Consider adopting the seller’s dog.
It probably sounds unconventional, but Wendy Tanson, a Chapel Hill, North Carolina real estate broker, once saw a zealous buyer use this very tactic to secure a deal. “The buyer’s offer to keep the dog made it much easier for the seller to move,” Tanson says. “It just goes to show that creative tactics can go a long way toward helping buyers get the homes they want.”
But while being creative might help when you can adopt the seller’s pet, hang on to an unwieldy grand piano, or remove piles of clutter from the basement, few real-world deals open themselves to such unorthodox negotiating tactics. In most heated bidding wars, cash—not creativity—is still king.
Pad the seller’s pocket
One of the best ways to triumph in a bidding war is to cover the seller’s costs.
From transfer taxes to realtor commissions, the fees associated with home sales can be a drain on the seller’s windfall. If you want a house badly enough, try doing what many buyers aren’t willing to do: take on those expenses.
“You’ve got to throw in closing costs,” says Anne Humphries, a real estate agent whose firm serves the Florence, South Carolina market. “I’ve even seen buyers reimburse sellers for renovations that were done just prior to listing the home for sale.”
Besides covering the seller’s costs, consider automatically outbidding other buyers with an escalation clause. The way it works is that instead of telling a seller you’re willing to pay $365,000 for a home listed at $375,000, you say, “I’m willing to pay $365,000 for this home, but if you receive an offer for $365,000, I’ll pay $367,000” and so on until your bid escalates to a predetermined limit.
It’s kind of like eBay except you could end up paying more than other bidders, depending on the wording of the clause.
“Buyers who take on escalation costs are at an advantage when bidding gets intense,” explains Tanson. It’s also a win for sellers because they could end up getting more for a house than the highest direct offer they receive.
Lower the seller’s risk
Determined bidders with ample liquidity and unwavering faith in their dream home can waive their legal protections and transfer risk from the sellers to themselves.
According to home sales data collected by Redfin in 2013, ceding certain contractual contingencies is helping many bidders secure a winning offer. Of course, there could be consequences.
Consider the inspection contingency–you are free to waive this in an effort to woo the seller, but you’ll be on the hook if the home needs significant TLC.
The same goes for financing contingencies. You can waive these protections (which ensure you’re not penalized if you can’t get financing), but if you have trouble getting a loan, you could get be on the hook for the cost of the house!
“Making a clean, uncomplicated offer can attract a seller when other offers are rife with provisions,” says Tanson. “It can be a good strategy in a multiple-offer situation.”
Adding a personal touch to your offer also makes a difference, especially when the seller is juggling multiple bids from equally qualified buyers.
How do you do it? By sending a letter. And yes, we’re talking about the paper-and-envelope kind.
While it might strike you as old fashioned, sending a seller a thoughtfully composed letter can sometimes curry favor and give you an edge over the competition. Is it manipulative? Maybe.
But this is a bidding war, and desperate times call for… well, you know.
As long as your letter sincerely conveys why you love the home, there’s absolutely nothing wrong with appealing to a seller’s emotions. Tanson relates an anecdote in which a prospective buyer, an electric train enthusiast, sent a letter to a seller, also an electric train enthusiast, explaining how he planned to keep the seller’s “train room” a train room. Ultimately, the buyer’s affinity for trains was a deciding factor for the seller, and the train room abides to this day.
“Knowing a lot about your seller” can often push your bid to the top, says Tanson. Sometimes, all it takes is a little research, a nice letter, and a little creativity to distinguish your bid from the rest.