Multiple Offers: How to Win, When to Lose

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

Discussion

  • http://profile.yahoo.com/X664HJKFULT2VZW5X33PVHJT54 James Alley

    When I bought my house, I went to the open house. It was rainy. No one else showed. I stuck around for a long time. I soaked it all up. I let the kids play. I talked to the agent. Instead of putting in an offer the same afternoon, a Saturday, I waited till Tuesday afternoon. I figured, if no one put in an offer by then, I would be the only offer, and the owner would be nervous. This was around Thanksgiving. I put myself in the owner's shoes. “We just had an open house. We didn't even get a single offer till Tuesday. The holidays, rainy season, and the economy might make things even worse…we'd better sell.” In other words, I recognized what their timeline might be like, what their anxieties might be. I knew if I put in an offer too fast they would see me as over-eager, opportunistic, or just the first of multiple offers. But by waiting slightly, it made me same more coy– and more rare. A little of the old hard to get strategy in effect, in other words.

    By the way, I actually discussed this possible strategy with the seller's agent. I wasn't pulling any punches. Everything was honest and transparent. He actually agreed it was probably a good idea. It still wasn't an easy purchase. Within two days, a competing offer came in about 50K over our own. But it didn't matter. We were already in contract. The seller tried to go with the subsequent offer, tried everything they could think of to wriggle out of the contract. But in the end it went through. So the contract is very important to protect both parties during the sales process.

    • http://blog.redfin.com/ GlennKelman

      That's a great story James, and congrats on getting the place. Were you worried the listing agent would share your strategy with the seller? Or do you know that in fact he did?

  • Pasta!!!

    Your agent should deliver the offer in person when time allows

    Is Redfin smoking crack????  We are in the digital age… email, electronic signatures are the way to go… even old school faxing…  Maybe for a million or a two million dollar house, but this link was given on multiple offer on low end homes…

    • http://blog.redfin.com/ GlennKelman

      People tell you stuff in person that they won't over email…

  • http://LiveLakeForest.com VickiLloyd

    Knowing how quickly your lender can get to funding can also make a difference in a multi-offer situation.  My buyers beat out 3 others on a bank-owned home by committing to close in 21 days.  It takes a team effort with the agent, a good lender, plus buyers who are willing to jump through hoops and deliver all required paperwork immediately.  If it's the house you really want, it's worth it!

    • http://blog.redfin.com/ GlennKelman

      Good point about the lender Vicki!

  • http://www.valuehomes.ca/Toronto_Listings/page_2201418.html Toronto Real Estate

    There is so much competition .Rates of properties are touching the sky not possible for everyone to buy.

  • NF

    As painful and frustrating as it is, the experience of losing the bid or not getting the first house you wanted makes you a stronger buyer. You have to be sure that beautiful houses come and go, and if you didn't get that one that you wanted so badly, another one is coming to the market. Be ready and prepared!

    • http://blog.redfin.com/ GlennKelman

      I remember when I lost the first offer I ever signed I wanted to crawl under a rock for a week.

    • http://www.myproperty.ph/ Philippine Real Estate

      I agree. It's also important to remember that you are not the first person to experience this, nor will you be the last. You have to roll with the punches, especially in the real estate business where things change everyday. You either deal with it and do better next time or get beaten by other offers over and over.

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