Multiple Bid Situations Increasing
We have been seeing an extremely high number of homes getting sold after “bidding wars” between prospective buyers, both in and around the city. This has always been a part of our market, and though you might expect that the recent housing downturn would slow or even stop these multiple bid situations, that hasn’t been the case in several areas. In fact, the looming home buyer credit expiration and the low levels of inventory are creating a bit of a feeding frenzy, particularly around open houses, as well as properties new to the market.
It’s our aim to try and make sure you not only get a great deal on a house, but you’ve got to get that house under agreement in the first place. Therefore, we’ve come up with a handful of tips and tricks that could make all of our lives less stressful when going into one of these multiple-bid situations, and that could also make the difference between getting the home of your dreams and losing it to another bidder.
Though we’ve compiled these tips and observations over years of conducting these types of bidding processes, and they can certainly increase your chances of getting the home, in the end each situation is unique. So read on, try these out – and let us know if you have any of your own to add.
- Ducks in a row – Preparation is key! Things will be moving quickly and you want to spend your time weighing options and crafting offers – not scrambling for simple details. Here are a few things you should have ready to go so we can help you move quickly when every second counts.
- Check book – You will need to submit a copy of a $1000 check made out to the listing broker’s firm to submit with the offer. Make sure you have a blank check and a fax machine or scanner handy.
- A letter of introduction from yourself to the sellers of the home. This is simply an introduction of yourself and a little blurb about why you like the home. It’s a great idea to prepare a simple outline of this type of letter, ready to be filled in and sent along with the offer documents. As different bidders compete to stand out on value, dates, down payments, etc., we have found it very helpful to try and stand out as a human being behind the numbers.
- Pre-approval letter – Make sure you have a mortgage pre-approval letter, possibly in various amounts for multiple situations, from a known and reputable bank. Ideally, you want this scanned into your computer in PDF format, and uploaded to your My Redfin account.
- Timeframe – Flexibility is key. Sometimes the winning bid goes to the person who can move the quickest or has the most flexibility in their close date. Try and keep your moving date fluid; you can make your offer more attractive by moving the close date around to meet the seller’s needs.
- Down Payment – The more you have to put down, the better. Sellers are not always going with the highest offer price, but rather, with the most financially sound offer. We can’t all have 20% to put towards our home purchase, but you can always adjust your down payment after the fact. Remember, the point is to win the initial bidding process and move quickly to the next steps, so show as much as you can without being dishonest and make sure your pre-approval letter reflects these amounts.
- Home Inspection – We would rarely if ever tell you to drop this contingency, but it is useful to make the time period for the inspection as short as possible. The most common window is seven days, but if you can find an inspector before the budding process begins, you might be able to shave that period to five days, which makes your offer more attractive. We have several great inspectors whose work we highly recommend, so feel free to ask your Redfin agent if you need a referral.
- CMA- As things are moving quickly it may be hard for us to generate and go over a CMA (Comparative Market Analysis) for a hot property at 5pm on a Sunday. So if you see something you are interested in and you know you will be going to see it, try to forge a relationship with one of our agents early so we can generate this before you view the home. This will give you time to review and absorb the home’s potential value before all of the offers are due. Use the Similar Recent Sales list from a home’s listing page and the sales record mapping function to get a good idea about current values in the area.
- Consider an “as is” clause- Many of the homes you encounter may be in less-than-perfect condition, but with demand running as high as it is, defects won’t have the same effect on price that you might expect. An “as is” clause in the offer says that you’ll do a home inspection, and if a major problem is found, you’ll consider not going through with the purchase; however, you also understand that you’re buying the house in its current condition. We often refer to these clauses as “comfort language,” since their primary purpose is to keep the seller positive about the offer in front of them. We’re not advocating being dishonest, but rather, keeping an open mind about what issues are important enough to back out of a deal. All offers are subject to both parties agreeing on the terms of the purchase and the sale agreement, so you will have some time to adjust your terms before signing that next step. Many of the issues found during a home inspection are easy to fix, and though they may represent a real investment of time and money, they rarely entail major amounts of repair work. If the house is getting attention from multiple buyers, you may have to accept these issues as part of the price of buying a “hot” property. It is ultimately up to you as to whether the place is worth the extra money needed to make repairs, but this clause can go a long way toward helping you stand out among other offers. Take a careful look at the property before you make any decisions, but remember that if you are competing with other buyers, you may not be playing by the same rules as a “normal” home purchase.
- Hold Fast, Stay Positive – This is a stressful and fairly intense process, but we have a lot of experience with these situations – we saw 11 of these “bidding wars” in the last week alone, while nearly 50% of all our signed offers in 2010 so far have had multiple offers. That being said, each of these multiple bid situations is handled differently. There’s no way to know what other buyers are offering, and no hard and fast rule for always having the winning bid. What you don’t want to do is get pulled into bidding more money than you can comfortably afford. Set your limit, and be prepared to let go of the property if the bids climb above that amount. You’re the only one who can determine your own comfort zone – we’re here to help you find a comfortable number, but we can’t tell you what that number is. Here’s what we can tell you:
- Value is ultimately relative; $10k of sale price is worth about $60 a month on a mortgage.
- The appraisal must support the value of the home; even if the home is “worth it” to you and to others, the bank has to agree.
- Sometimes losing the house of your dreams stings more than paying a little more money for it. But on the other hand…
- There will be another house. There always is.
Multiple bid situations can be very stressful, but win or lose, it’s not the end of the world. Like my grandmother used to say, “If it’s meant to be, it will happen.”