Just when you thought it was over:
- Deciding on an agent,
- Learning areas and neighborhoods,
- Learning new terminology like functional obsolescence,
- The unexpected revisit of your five-year plan,
- Hugs and hate with your mate,
- Unfolding and folding maps,
- Burning untold gas and rubber,
- Walking around strange homes (some stranger than others!), and
- Finally finding the one or at least one we agree to,
Somebody else wants the home you’ve made an offer on!
Most people underestimate the skill-set they’ll develop going through the process of buying a home. One of the final and probably most important and useful skills you’re likely to need will be winning a bidding war.
Price of the House
The danger, even if you win, is that the price will be pushed above the actual value. Not life and death if you love the house, but this can hurt the chances of final loan approval and cost you money, so there are better tactics to take than just inching up the price reactively. Think eBay. The same principles apply for the most part, along with some very powerful others listed here.
1.Find a nice agent!
Usually people decide on agents that seem to meet their needs without also realizing this gal or guy will represent you through the process. As long as it’s a residential deal, choose a likeable real estate agent – not a brass-knuckle type – who has some experience in successful negotiations. In fact ask them to relate a few when you meet, and you’re off to a good start.
2. Get pre-approved!
This is different and much more impressive than a pre-qualification letter. Get a pre-approval in writing and preferably from a recognizable source. A letterhead from “Bank of America” will go farther than “Bob’s Mortgages” and this could be a deciding factor at the crucial moment.
3. Don’t Bluff!
In this short, critical slice of time you can’t afford to make statements or ultimatums you won’t back up or follow. This is a guiding principle as you move forward. The moment you show the other party you will extend a deadline when you said you wouldn’t or violate your own claim that you’ve reached your limit without resistance, it affects all the other areas of negotiation and the seller may take another party more seriously. Credibility also plays an important role in making for a smooth contract-to-closing period, so tread wisely.
4. Know your stuff!
You and everyone on your team should know very well the value range of the home, what work it needs, and how attached you are to it. It’s a good idea to keep looking while the bidding war is going on, too. You may decide it’s not the home of your dreams after all or that you are more willing to flex if you really love it.
In this way you are better prepared to keep the negotiations off of the price as long as possible while you try to force the other’s hand and reveal a weakness or make the seller aware it’s not always just about price, which it really isn’t! For the seller it’s about how much they net from the sale just as much as how likely the sale is to actually go through, which comes down to credentials on both sides.
5. Offer a big deposit!
Let’s say the other party has offered to beat your offer with a slightly larger price. Rather than meet it and start a war of escalation, you could present to the seller that your price is firm and based on thorough study of the value, but what you will do is add $5,000 or $10,000 (something significant in relation to the home value) to your earnest money deposit.
This is the money you have at risk if you do not perform as you are supposed to according to the contract but it does not raise the price. In fact you might even get some of it back at the closing depending on your financing. It does show you to be financially capable and if your competition is asked to do the same and can’t, the seller might decide you are a better risk and accept your price as it was, even if a bit lower.
6. Offer to close sooner!
Similar to raising your deposit, this shows that you have your stuff together and are a safe bet. Rather than have some unqualified hopeful run your price up in a bidding war they were never likely to go through with in the first place, these qualification-type tactics should be taken before any escalation of price. That said, the next point is a biggie, as there is also a chance the seller will want to close later.
Ask, “Is there anything other than a higher price that would make you choose us over the others?”
Consider intangibles that help or add value for the seller. Perhaps they need more time before closing, need to store a boat for a couple weeks or really want the large bird-of-paradise in the front yard. You won’t know until you ask. Do not, however, ever, ever, ever, agree to have them stay with you after the closing and have your own contingency plan if they never come for that car or boat as agreed!
Invoke the appraisal as a limitation on price; point out better qualifications; somehow let them know it’s not all about the price if they don’t have that savvy already. Someone needs to teach them these things! You’re not only putting together a contract, you’re about to engage on a whole new phase of the transaction – from contract to close. Setting it up for success might involve enlightening a seller, even if they have an agent.
Even if you offered them 50% more than market value the transaction will be killed when the appraisal revealed the folly and your lender refused the loan on that basis, unless you can bring a lot more cash to the closing table. Unless your competition is offering to do just that or to pay in all cash, this is a promising tact to take, especially if the bidding war is starting to exceed an existing appraisal or broker opinion.
9. Get personal!
Appeal to their heart strings (if they have them). Be sure to have the whole family there if an opportune time to meet with the sellers presents itself, such as an open house or inspection if they will be present. Discuss what to say and not to say with your agent first, but try to meet them and even get to know them a bit. If similar interests can be found capitalize on them as you would in making any new friendship. It will be easier for them to say yes if they can associate a nice family, person, or couple with the offer. They might choose you because you both have a Pekingese! You never know.
10. Expose your enemy!
There is a way to use good credentials to keep the price the same and blow your competition out of the water. Suggest in a professional manner that the seller thoroughly look over and compare qualifications first. Your loan preapproval, earnest deposit, and closing terms can all play a role here and your opponent may just be exposed as semi-qualified, in which case you will usually become the only real offer on the table again. Congratulations!
11. Keep it Friendly!
This is not only possible, it is wise negotiating. Life is too short and often the home for sale – if the seller was a long-time resident – will go to “nice people,” which is what most sellers of homes they’ve loved really want. In an investor-sold property this of course differs and you will need to almost strictly propose facts and figures that are superior to your competition.
Your hard-nosed competitor will hopefully go the route of knocking the qualities of the home in a crude attempt to devalue it, which almost always backfires unless the seller is desperate. This seller is not likely desperate with you two competing for the property.
Explain how much you love the house first and foremost, but market value and certain repair costs simply have to be taken into account.
12. Walk away!
If things do get out of control and the price exceeds rationality, know that even if the seller falls prey to their own greed in this way they are likely going to be embroiled in a long, frustrating, and ultimately losing proposition that you should be happy to have avoided by backing out of the negotiations.
The best way to get over losing a house you love after all that work is to quickly find a new one. Any real estate agent or marriage counselor should agree.
But part of your purpose here is to win well, not just to win, for winning by spending too much can be considered losing to a degree. With the above advice this should not be necessary. In fact you could preclude the war altogether with some of the above tactics and savvy, which is clearly a win!