Listen up would be buyers (and their agents). I have 5 creative ways to keep you from losing another bidding war and none of them have to do with you (or your clients) over paying for the property.
Before jumping in, I want to address the reason many agents struggle with helping their clients win bids. Fundamentally, many agents view real estate transactions as simply “real estate transactions.” This could not be further from the truth and I would argue that 95% of real estate sales are primarily NOT about the money. Now don’t hear me wrongly, the money is important for all parties involved, BUT the money (purchase price) usually comes second or even third to other important factors. Your primary goal as a buyer is to discover what is MOST important to the seller and then be sure to deliver on that in your offer. Let’s dig in.
- Relationship and Rapport: This is the first step to discovering what is most important to the seller. As realtors, we stand in the gap between both parties in the transaction. Having an agent who has built rapport with other agents and who has nurtured those relationships is so incredibly critical to getting your offer accepted. Often times there is very little difference between the various offers on a home and the relationship that exists between the listing agent and the buyer's agent can tip the scales as to whose offer gets accepted. As the adage goes, “your network is your net-worth” and this is true for your agent as well. Your agent's strong network (and reputation) can give the other party in transaction confidence that he/she is trustworthy and, by extension, his/her clients are as well. If your agent doesn’t have a previous relationship with the listing agent, he/she MUST be a good communicator and be friendly. Make sure your agent is reaching out and having verbal conversations. I can’t tell you how many times I have had a listing, received 5-6 offers, and only had a phone call from 2 of those agents. The other offers just showed up in my inbox and the agent didn’t even bother to call or ask questions. That sort of behavior will NOT win you the property.
- Earnest Money, Appraisal Gaps & Terms. What is Earnest Money? Simply put, earnest money is a deposit made to a seller that represents a buyer's good faith to purchase a home. It’s quite rare, if you are working with a competent agent, to write a contract that would actually put your earnest money at serious risk so why not use this tool to give you a leg up on the competition? Recently, I helped some buyers put in an offer on a home. The list price of the property was $485,000. The home had previously been under contract but in the 11th hour the contract fell through leaving the sellers with two mortgages to pay. After discovering that there were multiple offers on the home, I knew I needed to give my clients a leg up on the competition. My clients expressed to me that they refused to pay over asking price for the home so this meant I had to compete on terms instead. By putting myself in the seller's shoes, it was obvious that having two large mortgage payments must have been an unsettling position to be in. The most important thing we could offer these sellers was "insurance" that we meant business and intended to close this deal for them. In order to do this, we put in a full price offer with $10,000 in earnest money and a very SHORT due diligence period. This won us the bid OVER another offer that would have netted the sellers more money. That is the power of Earnest Money. Likewise, in order to give sellers confidence in moving forward you can offer what is commonly known as Appraisal Gap Coverage. With the market rapidly escalating, appraisals have been all over the place. (I recently had two appraisals come in on a home that were $50k apart but that is a frustration for another blog post). As listing agents are guiding their clients, we can be confident that the market demands a certain price for their home BUT we are forced to extend words of caution and to set clear expectations that although we may go under contract for a certain list price it is possible their homes may not appraise for what the market is demanding. Because banks are involved in 99% of real estate transactions, it's not a true "free market" endeavor meaning the bank gets the final say on price and NOT supply and demand. One way you can sweeten your offer is to agree beforehand that you will cover up to a fixed amount of money over and above the appraised value should the home NOT appraise for contract price. This is something that needs to be discussed with your agent but if you are confident the home is worth what you are offering then I can't suggest this strategy enough!
- Be Squeaky Clean: Cut out the junk and make your offer CLEAN. Do you want the house or not? Don’t let a $50 termite clearance letter request, for example, muddy the contract and cause you to lose the deal. If it’s not a must-have, don’t ask for the sellers to pay for it. On the listing side I see offers that are riddled with little nonsense stuff that can just put a bad taste in a seller's mouth. Oh and while we’re on this topic, DON’T EVEN THINK ABOUT ASKING FOR CLOSING COSTS unless you absolutely need them. If you’re in the position in this market where you don't have the cash to cover closing costs and you do need them then you are going to really have to rely on some of these other tips to get your offer across the finish-line.
- The Power of Video: We’ve all heard that writing a letter can help close the deal but I am the only agent I know who has instructed his clients to record a short video to send with the offer. This is such an easy thing to do and it is incredibly powerful. Showing people your face helps to build the relationship that we talked about in tip #1. Keep the video short (under 90 seconds) and to the point. It should not feel over produced but rather intimate and sincere. Use your smart phone and put it in selfie-mode. Hit record! Sellers LOVE THIS. I recently had a newer agent submit an offer on one of my listings. She was eager to help her clients and told me they needed a contingency in place for them to sell their current home. If you know this market we’re in then you know offers do NOT get accepted with these type of contingencies. Trying to give her a fighting chance I suggested she send my clients a video with their offer. The video was touching and spoke volumes and guess what? Out of 4 offers my clients accepted theirs, contingency and all. My clients were selling a home they had lived in for 20+ years. It was the home they had raised their boys in. Was the money important? You bet! But what was more important to them was ensuring that their home was going to a deserving family. That video sealed the deal.
- Utilize escalation clauses. Remember the wonderful days when Ebay was the dominant marketplace to sell and buy items online? One of the key features of Ebay was the ability to put in a “max bid” on an item so that while you were away from your computer your account would “automatically” increase your bid when someone else placed one higher. This is similar to how an escalation clause works. You set a “limit” and offer to pay $x,xxx.xx above the next highest bid up to a max price. I’m not going to go in a lot of detail on this but just know it is a valuable tool and you need to ask your real estate agent about it.
I hope these tips help you win your next bidding war! If they do, please let me know about it by sending me an email to JoshuaRexAustin@gmail.com I was inspired to write this after reflecting on the last 3 years of my real estate journey. I'm proud to say that in the dozens and dozens of offers I have submitted on behalf of retail buyers we have only lost ONE bidding war. I'm proud of that record but more importantly I want to see those I care about succeed! I hope these tools help you and your agent close your next Real Estate Deal. Cheers!
This blog was written by Joshua Rex Austin, GA RE LC 384873. Joshua is a licensed real estate agent with Frank Moore & Company, LLC.