Reasons your competitors are beating you in bidding wars

Hank Bailey
Hank Bailey
Published on March 12, 2019

It’s Sunday evening and John and Mary Homeseller and Ineda Deal, their real estate agent, are chatting on the phone.  They have a stack of purchase offers in Ms. Deal’s inbox they are going over from various buyers who have expressed a desire to buy their home. The Homesellers were smart to listen to their agent’s advice and decided to entertain all offers simultaneously, rather than have them trickle in.

It’s a hot market, and the Homeseller’s own an attractive home, priced right. One of these offers will win the day. Which one? For some buyers the larger question all too often might be to ask why your offer didn’t win. What does your competition have that you don’t?

They have loan pre-approval

If a seller is looking at 2-6 offers in their hands, they will eliminate your offer from consideration if there is even a suspicion that you may have trouble qualifying for a mortgage. Your competition (other buyers) may have taken the time to prepare for the bidding war by seeing a lender and going through the pre-approval process.

Some may have even gone so far as to request a letter from the lender stating that they’ve completed the underwriting process, have a loan commitment, and they’re ready to go, pending a contract on a home and an appraisal.

Their their offer contains an escalation clause

Suppose Mr. and Mrs. Homeseller are asking $250,000 for their beautiful “move in ready” home. Since every offer that was submitted – after the first one – had an agent who know of the existence of that offer the sellers had in hand and that there will be multiple offers, their aim is to submit the cleanest, strongest offer possible. You might not get a second chance after all.

So, an experienced real estate agent writes the offer with an escalation clause stating that their client will pay $1,000 more than competing offers up to a specified maximum – an amount his or her client is comfortable paying for the property.

In essence, the escalation clause causes their buyer’s offer to increase incrementally up to that maximum.

Those who think it’s a wise move say that the strategy shows that you are earnest in your desire to win the home. And, in a competitive real estate market, the strategy grabs most sellers’ attention.

Offers with too many contingencies

Think about the scenario at the beginning of this post.  We have Mr. & Mrs. Homeseller and their stack of offers. Unlike kids in a candy store, they and their agent will closely examine every term in every offer, down to the smallest of seller concessions. While we may not always know exactly what the sellers’ hot buttons are, we do know that they want top dollar. So, naturally, the sales price will be the first place in the offer they look.

After that, once again they will analyze the terms of each offer. What contingencies is each buyer requesting and how long do they want to be able to take to fulfill them? Are there any deal-breaker contingencies, such as the buyer needing to sell his or her current home before moving forward to consummate this deal?

Offers with a lengthy list of demands and exacerbated contingency periods will most likely end up at the bottom of the pile.

The buyer that wins the bid many times on a home won’t ask the seller to buy him a home warranty, pay for closing costs or list repairs he wants the seller to either make or pay for within the offer itself prior to going under contract and going through due diligence.

They have more cash than you

Cash is “king” in real estate just as much as it is in any other financial transaction. The cash buyer has an advantage over buyers who need financing to buy the home. If the terms are right.

If you can’t pay cash for the home, a larger down payment will be attractive to the seller. I’ve seen buyers offering to put 20%, 35%, and even 50% down, which caused those offers to be taken about as solidly as an all cash sale because it showed the buyer had cash to work with. Maybe not all of it, but a large sum to work with in case an appraisal was low or some other situation arose – like lender required repairs the seller didn’t want to perform.

Doing your homework

At times, I’ve seen a buyer lose the bidding war because their competition outsmarted them. This is achieved many times by hiring the right real estate agent who is able to research current market values in the neighborhood so their clients know exactly how high to bid and when to stop as to not get in trouble with appraisals down the road and waste time.

An experienced agent will take the time to speak with the listing agent to find out what the seller’s hot buttons are in selling their home. This could include what their motivations are for selling so that their buyer could find out how to write an offer in such a way to help the seller reach his or her goals.

For example, suppose the seller is hoping to be able to rent back the home for a month or two after closing while he or she closes on a new home. This information is valuable for the buyer because if it meets their needs as well, his or her agent can structure the offer to allow the sellers to remain in the home after closing, as tenants, for a short period of time. In particularly competitive markets, I’ve seen recently where one buyer even offered the seller a reduced rent during the rent-back period.

They’re faster 

If you’ve missed out any number of homes, it might be because you’ve not been able to be among the first to view listings when they hit the market. In real estate we have a saying. Time is of the essence! That’s true in a sellers’ market for certain! Sure, it’s challenging in a busy schedule to tour homes for sale, but it’s a must if you hope to be competitive in a “hot” market.

Your buyer competition has signed up on their agent’s website to be notified of new listings as soon as they hit the market. Their agent is on top of their game by seeking listings that fit their clients’ needs.

Like any battle or competition, it’s incredibly hard to win a bidding war against an equally matched opponent. Fine tune your tactics and strategy and enlist an experienced real estate agent. Chances are good you’ll prevail.

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