Making a successful bid on a home isn’t science…you offer the most money and you move in.
Not exactly. There are sometimes where you can show up offering far more than the home is being advertised for and still get the shoulder. What went wrong? It turns out that homebuying is a science, and not just a financial one. Understanding the motivations of the seller can be just as important as having all the money in the world. Just think about all the instances in fiction and in real life where an owner turns down a significant chunk of cash to remain in a home that’s worth far less.
The good news, in real estate, is that if someone has put their home on the market, they are most certainly looking to sell it to a bidder. Understanding their motivation for selling the home can be of utmost importance when determining whether you’re the bidder that walks away with the property.
There are three basic mindsets that a seller approaches the real estate market with, and there’s a sound strategy for executing your bid for each variety of seller. Realtors: Share these strategies with your clients to help them land the home of their dreams.
Okay, so we said that money wasn’t always the motivation for someone selling their home, but let’s be honest: More often than not, a seller is motivated more by finances than any other factor.
It’s still much more complicated than offering the highest bid, however. “Bidding wars” aren’t like actual auction houses. You can’t rest on your laurels, waiting for the next potential buyer to bid, because there’s a chance that you won’t get a second chance to make a counteroffer. Strike to kill, and do so strategically.
The first step to take when entering a competitive market is to bid first. This doesn’t take too much planning; just make an offer equal to face value on the home. This let’s the seller know that you’re serious (on the other side of things, don’t lowball your offer looking for a discount…this will make you look worse if they’re forced to decide between two bids).
An initial offer isn’t the only number you should be giving a seller. Also include an escalation clause, or the amount of money you’re willing to increase your bid if other potential buyer’s jump into the fray. For example, if the asking price is $300,000, tell them that you’ll go as high as $330,000. Of course, make sure that they know—in print—that you’ll only raise your offer a tad higher than opposing bidders. If they offer $301,000, you’ll automatically come in at $302,000…not $330,000 right off the bat.
Realtors can advise their clients on setting up escalation clauses by comparing what homes in the area have been selling for recently, and gauging the current demand.
Some sellers realize that their home isn’t the best on the market, because of issues that have gone untended. Some individuals do extensive remodeling prior to selling a home, just to make it more attractive to buyers. Some don’t. These sellers are looking for a simple selling process, not necessarily an overly profitable one.
One of the tricks of the trade for moving an unappealing home is to offer it for a lower asking price—even lower than the already low asking price—if the buyer agrees to sacrifice some contingencies. These are the clauses that come with a buyer’s contract that define what items must happen within specified timeframes for a sale to go through. Appraisals are a common contingency, as it protects buyers from details a seller might try to hide—like bad plumbing or termites.
A seller looking to get out of a home fast—who has been upfront about the issues with the home—might see lower offer packaged with a contingency-free clause more appealing than a higher offer for a home that comes with more contingencies. For example, if you offer $300,000 but demand an appraisal, the seller of a waterlogged home might prefer another offer, which is only $250,000 but tosses out the appraisal. The latter buyer understands that while they get a discount on the home itself, they’ll need to spend a few bucks to fix its problems.
Realtors can consult with potential buyers to create a balance between how much they’re willing to offer and how much they’re willing to spend on repairs as a result of that low offer.
There are other values that people put on homes besides financial ones. Some parents sell their large homes because all of their children have moved out. Some children are selling the former homes of their parents, who are recently deceased. Neither particularly needs the cash, but have no reason to hold the property. In these instances, a high bid is far from the only factor in question.
In these cases, if a bidder doesn’t live up to their expectations for the home—someone they fear may radically overhaul its design, for example—they may accept a lower offer from a more “qualified” bidder.
The key to winning in this case is to understand what the home means to them and make a personality bid. Explain that you’re looking for a home to raise your own family in, just as they once did with theirs. Give positive acknowledgements of what it meant to them and how you plan on giving it the same respect. This can be done in person or in a personal letter to the owner.
More often than not, money will be the driving issue when making a bid on a home. But sometimes it’s not. Realtors and buyers should both familiarize themselves with the seller’s situation, to understand what’s motivating them. If it’s money, draft a wise strategy for outbidding your opponents. If it’s something else—from fixer-upper complications to emotional connections—plans can be made to appear as the perfect bidder.