13 Jul How to win a real estate bidding war
I thought I would share some thoughts on what it takes to win a real estate bidding war. I’ve had the opportunity to experience it multiple times in every seat: listing agent, buyer’s agent winning bid, buyer’s agent losing bid. But first, a quick review for those who don’t know what a real estate bidding war entails:
There are two ways to list a house for sale. The first is taking offers anytime. Once you see the property, you can put in an offer at any time. The second is to hold back the offers. Everyone gets to see the house during the course of a week (usually only a week), then everybody submits their offers at a specific time and day. Because there are multiple bids on the house, the price gets bid up. Sometimes it gets out of hand. This is the real estate bidding war you usually hear in the media.
So how do you win a real estate bidding war? Well let me just start by giving the most important tip of all to save us all some time: you will always lose to someone who really wants/is in love with the house. If you didn’t walk into the house and think to yourself “this is the one” and get a strange feeling of excitement before you’ve even seen the rest of the house, then you will most likely lose out to another bid. You can crunch all the numbers you want, analyze comparables 10 times over or prepare some elaborate spreadsheet, but in the end if someone can’t live without the house, they will pay the extra 20-100k to live in their dream home.
I often ask my clients “if you lost this house by X, would it bother you”. If the answer is yes then pony up the extra 5-20k and don’t look back. I know what you are thinking. Sounds like a real estate agent trying to schmooze you into purchasing a home! I disagree. Is 5k – 20k really going to matter 5 years down the line when you’re sipping wine in your backyard watching your kids grow up in the house you absolutely adore? No, it won’t. Stop counting your pennies. I’m not saying be irresponsible. I’m saying that you need to feel excited every time you come home, every time you host your friends etc etc. Is this feeling worth 5-20k more? I think it is.
Let’s look at it from another angle. Clients of mine found a beautiful house that was about 25 minutes past our search boundary. They loved it, but didn’t think they could add 25 minutes to every single drive. They were on the fence, we had about an hour and a half until offer presentation, and we’ve been viewing the house for the past hour. The strange thing was that the listing agent seemed very desperate for us to bring in an offer so we had some wiggle room on the downside. We sat down and I asked them if there was a price that this would be worth it to them. After talking through it, no amount of monetary value would be worth adding a 25 minute drive to their regular commutes/daily driving. The point? It isn’t about the money.
This is getting to be a pretty long post so I will quickly finish off with some rules of thumb:
- If there are no other offers, you are in control. Think about going slightly under asking or at asking. No point in not taking a shot right under asking. You are technically the market, no matter what they try to throw at you.
- Don’t over analyze comparable properties. Numbers on paper are very different from the actual feel of the house. You also don’t know how the offer day went down. Someone who might have lost 5 bidding wars in a row might have said “I can’t take it anymore, I’m all in”. Use comparables to know what someone has been willing to pay for something similar. Buyers hate to be the first ones to overpay for a property. If someone else has already created an outlier in the neighbourhood, it will be easier for others to follow suit.
- Have numbers ready for different situations so that the emotion is no longer there. For example: 1 offer = under asking, 2 offers = slightly over, 3 offers 20k over etc etc. Have numbers ready for a second round of bidding as well.
- Have multiple signed pages ready to go. Speed is your friend. A slow, flip phone yielding agent might not be able to get to his clients in time. If offers are by email, there is a big chance most agents will be struggling to send in/sign a second round offer.
- If you really love the place, go see it before the weekend and put in a bully bid. The trick is to give them something just under what they thought they’d get in a bidding war, but still very respectable.
- Don’t show any sign of interest in the property until the very last minute. You usually need to “register” an offer an hour before you present or email them in. The more information you know, the better your bid will be. If you let the listing agent know that you will be bringing an offer today, they will definitely start yapping about “well so far we have X number of offers but potentially we still have another 3”. I once asked a listing agent if offers were in person or by email since it was unclear. He then proceeded to say “ok are you bringing in an offer tonight, because I should probably let the other guys know”. I replied… “we are still thinking about it and unsure. I will be meeting with my clients later in the day”. he then stated that he will let the others know that there would most likely be another offer. GREAT! When i called him at 4:59pm to register my offer, he was still peddling the idea of possibly getting 2 other last minute offers, none of which ever showed up.
- You will most likely have to go in with no conditions.
Remember: Everyone else is going through the exact same though process of you. Nobody knows the answers. The only people who are ahead are the ones that I mentioned earlier in the post: those who know they will pay whatever it takes to win the house. If this is the case, you have already lost. If you are uneasy about offering over asking, I would almost suggest sticking to a strategy and losing a few bidding wars. That way you are slowly eased into the reality that you need to start paying over asking for properties.
Norman Hill Realty Inc
20 Cachet Woods Court #2