A recent column about would-be homebuyers giving up because they keep losing bidding wars brought a flurry of responses: Readers want to know how they can become winners in this arena.
The competition factor certainly isn’t going anywhere. According to Redfin, more than half of all houses on the market drew competing offers in January. In one case last year, a rather lackluster house in Los Angeles drew offers from 39 wannabes.
Here, then, are some timeless tactics that should give your clients a fighting chance.
Make sure they line up the professionals you’ll be using in advance – lender, lawyer, home inspector, appraiser – and make sure they can be ready to go at a moment’s notice.
They should get preapproved, not just prequalified, so they’ll know exactly how large a mortgage you can get.
And they search in a price range somewhat below their upper limit. In a bidding situation, they’ll have some wiggle room.
Money, Money, Money
Suggest they offer more than the list price. At today’s low interest rates, an extra $10,000 may add only $40 a month to a mortgage payment.
Escrow up: The more your buyers can put up at the start, the better they’ll look to the seller. If the deal falls through, as long as it wasn’t the buyer’s fault, they should get your money back. And don’t forget that an all-cash deal tells the seller, your buyers won’t be stopped if your financing falls through.
And Make a “clean” offer. The fewer the contingencies, the better. One to jettison for sure: the one about you selling the buyers’ current house first. In this frenzied market, no seller is willing to wait around for that. If they really must sell first, bring up selling to a company that buys houses as-is or an iBuyer.
Also suggest your buyer consider crossing out the contract stipulation that the house must appraise for no more than a certain amount. They should think twice, though, about giving up their right to have a place inspected. Otherwise, they could be buying problems they never bargained for.
The HOA Advantage
If a homeowners association is involved, a buyer usually has about a week to review those documents. They can then use that time to obtain an appraisal and an inspection. And since they can use the HOA document review to get out of the deal for any reason, they can cancel if the appraisal or inspection turns up something they don’t like – even if they waived those contingencies.
Think about suggesting your buyers add an “escalation clause,” and an offer to pay some of the seller’s closing costs – title insurance, transfer and recordation taxes, for example, or even moving expenses – up to a certain amount. Be creative: If your buyer has a service they can offer, they should do so. If they are a mechanic, for example, they could even offer to tune up the seller’s cars for two years.
It’s also important to allow the seller to remain in the house for up to 90 days after closing. This will not only give your buyer time to sell their place, should they need to, but it also will give the sellers any extra time they may need. Your buyers may not even want to charge them rent, or at least not more than what their mortgage payment will be.
They can sweeten the pot with a heartfelt “love letter” about how wonderful they find the seller’s house, how well taken care of it seems and how they will cherish it once it’s theirs. Corny, yes, but with some sentimental sellers, it works. You buyers can also consider meeting with the sellers and pleading their case in person.
Hang In There
If these don’t work, it’s important to remind your buyers to hang tough. Deals fall through all the time. A recent survey said 1 in 4 don’t make it to closing, for any number of reasons. So, ask that your buyers’ offer be held as a backup, just in case. There’s nothing wrong with coming in second or even third if they get to move up the line if the bidder ahead of them falls by the wayside.
And keep tabs on why your buyers strike out when they do, so they can modify their offers accordingly.
If your buyer doesn’t feel comfortable with being this aggressive, it might be wise for them to step away and come back when the market calms down. There’s nothing worse than making a huge financial mistake – especially one that they’ll have to live with a for a long time.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org.