It’s a jungle out there. In California last month, 74% of the offers submitted by Redfin agents on a property met with competition. In Washington DC, 51% of offers faced a bidding war.
The problem is inventory, with the number of homes for sale down 43% in California and 27% nationwide compared to last year, even as the number of new customers contacting Redfin in March is up 108%. The supply of houses for sale is now below six months – the threshold between a buyer’s and a seller’s market — in 13 of the 17 markets we could measure.
And the numbers for the overall market don’t even begin to capture how fierce the competition is for the most sought-after properties: houses between $300,000 – $500,000, and bank-owned homes that the listing agent has intentionally under-priced to create a bidding war. Small in-town constructions projects are also in high demand, even six months before anyone can move in.
This has created a new problem for Redfin and our home-buying clients, many of whom began the year assuming the market was on their side. The number of offers being signed by our customers in March was up 50% from this time last year, but our closings were up only 17%. The space between those two numbers is filled with a lot of heartbreak and frustration.
Since Redfin’s customer-satisfaction and profit targets depend on our being top-dogs in competitive deals, we’ve had to hustle together a 35-point agent training program for winning bidding wars. Now of course to have an advantage, you have to keep that advantage to yourself, so we won’t share everything we’ve got.
But since we also need to educate our customers as partners in the fight, and we hope to learn new tactics from this community’s comments, we are sharing our agents’ top-six tactics with everyone in Redfindia:
- Data: arm yourself with information, about sale-to-list ratios for area homes and how many parties have bid on recent transactions. Be prepared for setbacks; in competitive situations, almost nobody wins his first offer – it’ll feel like the end of the world – but if you did win the first time, you’d just wonder if you overpaid. Just make the best offer you can without pushing yourself into an uncomfortable place. Sometimes that first offer will surprise you. But mostly, losing on the first or second offer is just an experience you have to go through for yourself.
- Relationships: Research the listing agent by asking your agent to query Redfin’s Scouting Report or the local Multiple Listing Service for her deal history, just to understand how the listing agent prices homes – some use a low price to create an auction and others ask for top-dollar. Consider touring the home when the seller’s around, so you can charm her in person. If your agent doesn’t know the listing agent, try to get the two to meet at a broker’s open house. Your agent definitely needs to find out how the listing agent prefers to communicate, by telephone, in person or by email, so you and your agent can be Johnny-on-the-spot without being a pest.
- Communication: Don’t guess which terms matter to the seller. Your agent can just ask the listing agent what it will take to win the deal. Sometimes sellers will take a lower price if the buyer can be flexible about the closing date, or promises an immediate inspection with no follow-on repair requests. And even if you can’t afford a high overall price, let your money talk, offering up as much earnest money as you can afford, to underscore that you’ll follow through on the terms you offered.
- Offer presentation: Your agent should deliver the offer in person when time allows, although sometimes bidding wars happen so fast it’s more important to get the offer on top of the pile (sometimes this means going first, sometimes it means going last). It helps to have your agent summarize key terms as bullets in a term sheet, then present the purchase & sale agreement in a package with the term sheet as the first page. The terms that favor the seller should jump out. Include a cover letter about your personal history, with a family photo; if you plan to live in the home, say so. Conclude with your agent’s deal history, to demonstrate that the escrow process will come off without a hitch.
- Financing: For the pre-approval letter, use a local lender who understands neighborhood price trends, preferably one recommended by the listing agent. You can even ask your lender to call the listing agent, to testify personally that your money is good. Address appraisal concerns up-front: many bidding wars result in a price higher than the appraisal value of the property, leading the seller to worry that the buyer’s bank will balk at the price. Get a pre-approval letter for the highest-possible amount you can borrow and, if you have the money for a larger down-payment, make it clear that you are willing in a pinch to borrow less and pay more to offset a low appraisal.
- Planning ahead: Arrange an inspection in advance if that is customary in your market, just so you can reduce the number of contingencies in the offer. Think through how you’ll feel if you win or lose an offer, calculating what different prices mean for your monthly payment. On one hand, don’t pick a price so high you’ll wish you hadn’t won the deal. On the other hand, don’t pick a price so low you’ll wish you’d bid more. Ideally, you want to have no regrets if you get out-bid, secure in the knowledge that the other buyer paid a price that doesn’t make sense for you. And you want to be ready for any outcome, able to respond to a counter-offer confidently and quickly, guided by discipline rather than emotion.
That’s our list. What tactics have worked for other buyers and other agents? We’d love to hear your thoughts on what you’ve learned from wins and losses. And if you’d like to learn more about the competitive dynamics in your local market, especially for first-time home-buyers and investors, sign up for our new class, “Winning Against Multiple Offers.” If you don’t see a class offered for your area and you’d like to check one out, leave a comment below and we’ll hook you up as soon as we can get something scheduled.