Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

5 Tips To Help You Win A Real Estate Bidding War

Written by Than Merrill

The prospect of bidding on a property can be unnerving, even to the most seasoned investors. Buyers are forced to temper their expectations and fight for an edge in what’s essentially a zero-sum game. It is a hard reality to swallow, but even the best bids will not always be enough to catch a seller’s attention. If you are finding yourself in this particular situation, consider a new approach. The following advice will give you an advantage in any bidding war:

Prepare Yourself Accordingly

The real estate industry is one in which due diligence should reign supreme. However, for one reason or another, investors neglect to prepare themselves accordingly. This is particularly disturbing, as a lot can be on the line at a given moment. Each transaction has massive implications for every party involved. More importantly, you might only have one chance to acquire the property in question. Needless to say, the process of buying a home does not favor those who take it lightly. Do yourself a favor and make sure you are ready for what is in store, as it will facilitate a timely and profitable transaction.

Sellers and listing agents will certainly have their own criteria that they want candidates to meet. However, none may be more important than mortgage preapproval. Essentially, they will take comfort in knowing your ability to close on a loan quickly and effortlessly. Having said that, buyers are advised to provide documents that showcase their ability to cover closing costs and a sizeable down payment. Those with the financial means to do so may even make a larger-than-normal earnest money deposit to underscore their seriousness. Your ability to pay should not be questioned, nor should it have reason to be. As a potential buyer, your goal is to establish legitimacy and peace of mind.

“The seller’s biggest fear is the deal falls apart at the last second,” says Neil Brooks, a real estate agent with HomeSmart Real Estate in Scottsdale, Ariz. “If you can share with that seller’s agent that you’re going to make the transaction go smoothly and worry-free, that’s going to help.”

Understanding your own credit score will go a long way in a respective transaction. In fact, the more you know about your credit score, the easier it will be to place a seller at ease. Investors are advised to check their credit score at least six months prior to their home search, as this will provide ample time to account for any errors that may be present or improve on any underlying issues.

Cash Is King

Those with cash reserves have predominantly excelled in the investing world. At the very least, cash has given investors an advantage over the average buyer. That is not to say that you can’t be successful without cold, hard cash, but it does help – as is evident by its increase in popularity. Accordingly, all-cash offers account for approximately 40% of recent home sales in today’s market. That number is up considerably from past cycles.

Paying in cash is perhaps the ultimate compliment to the first piece of advice in this article. Again, as an investor, you want to convey a heightened sense of legitimacy and peace of mind. What better way is there to prove that you are a serious buyer than paying in full, and in cash? Demonstrating the ability to secure the funding, in and of itself, is enough to gain the trust of most buyers. However, it is the ease in which an all cash offer can provide that is enticing to most buyers. There is no mortgage process, no underwriting approval and no worrying about financing falling through. What seller would scoff at the idea of receiving cash in return for their property?

While not every investor will have this luxury, it is important to understand the benefits of an all cash offer. Perhaps nothing else will place you at the head of the pack faster than a cash proposal. It might not even be fair to call it a bidding war.

Be Mindful Of Contingency Clauses

It is safe to assume that placing a seller’s mind at ease will work in your favor. Again, the more comfortable you can make a seller, the better chance you have at winning a bidding war over your competitors. Reducing any potential “roadblocks” should be considered a priority for any buyer.

Purchase offers often contain clauses that make the sale contingent on an appraisal or on the buyer’s ability to sell their current home. Sellers can see them as potential roadblocks. Therefore, contingency clauses need to be addressed, as they have the potential to derail a deal. In fact, buyers with enough cash to cover a low appraisal or two mortgage payments may want to consider waiving those contingencies all together.

While some contingencies can relegate a buyer’s bid to the sidelines, others can make them stand out in a good way. Real estate agents may suggest including an “escalation clause” in the contract. These basically say the buyer agrees to exceed the highest competing offer by a specific dollar amount. For example, you’ll pay an extra $5,000 on top of the most lucrative offer, or up to an additional $10,000 in increments of $2,000. Including an escalation clause can make your bid look that much more attractive.

Sell Yourself & Your Business

The real estate industry is a people business – there are no two ways about it. Anyone who suggests otherwise is neglecting a cardinal rule. Networking and establishing relationships is the most profitable thing you can do as an investor. After all, it takes the consensus of two parties to close a deal. Establishing a working rapport with those you do business with will go a long way in determining the success of your business.

At the risk of sounding too cliché, investors are advised to sell themselves. More often than not, the real estate industry is more than just quantifiable numbers. There are certain variables that can only be accounted for on a more personal level. Only in establishing a working relationship with others will you find success.

In regards to wining a bidding war, agents have urged their clients to write a personal note to the seller. While modest, conveying your appreciation and what you love about the home could set you apart. Be transparent and let them know what your plans are.

“Even though you have a process that’s mostly anonymous, you’re trying to create a bond that puts yourself in the best light,” says Duan Rockette, a real estate agent with Berkshire Hathaway Home Services in St. Charles, Mo.

The addition of a personal touch has helped buyers win bidding wars time and time again, even when the offer failed to be the most competitive. You will be surprised at how far a personal touch can take you.

No Room For Regret

The nature of buying a home will undoubtedly evoke some sort of emotion. For some, it is an exhilarating experience with limitless potential. Others may view the entire process as a burden – one that needs to be over and done with as quickly as it got started. However, regardless of your personal affinity for a particular home, the time constraints and competitiveness associated with a bidding war can only heighten tension. It is easy to become overwhelmed and neglect due diligence. Don’t let this happen to you.

It’s important to step back and be honest with yourself. What’s more devastating – missing out on your “dream home” or overpaying by $20,000 to get it?

The goal – at least, ideally – is to avoid regret either way, says Christian Harris, a real estate agent with Berkshire Hathaway Home Services in the competitive Seattle market.

“You want to make sure that, at the end of the day, you’re not going to regret your decision,” Harris says. “You want to make sure you can sleep at night.”