Dear Ray,
We’re planning to downsize in 2013. Our Realtor found a home that suited our needs perfectly. We were about to make an offer when we were informed that someone else had submitted an offer ahead of us.
The real estate agent said we could still submit an offer, but we might become involved in a bidding-war. We have no experience in bidding wars, so we declined to get involved. Now, I’m regretting that decision.
Do you have any advice for how we might be better prepared if we’re facing this situation in the future?
— B.P.
Bidding wars are back. The record-low inventory of homes for sale means some buyers are finding themselves competing with as many as 10 other buyers.
Recently, one Seattle-based real estate company began publicizing neighborhood-specific details about pending sales. It theorized that by knowing the number of bidders and details about what others are offering, it would give you an advantage in a competitive-bid situation. Nonsense.
What other buyers are offering on other homes may be valuable information if you’re a voyeur, but it’s not going to help you win a bidding war. That’s because no two transactions are alike. Every buyer is unique, and so is every seller. And no two homes are alike. So knowing about the bidding war down the block doesn’t give you any advantage.
First, don’t try to become a real estate expert: Hire an expert instead. When you need legal advice, you seek out a lawyer; when tax time rolls around, you hire a CPA. I find it curious that some people don’t think twice about jumping feet-first into real estate without any guidance. Eventually, most people figure out that they need the help of someone with experience. Realtors are experts at real estate.
Relax, there’s an easier way to win a bidding war. Here are five tips:
•Start by choosing an expert — When faced with the possibility of a competitive-bid situation, your odds of success increase if you have the help of an expert. When the inventory is tight and there are 10 buyers for every house, you’ll want the smartest, most-experienced agent working for you.
When choosing an agent, the most important qualification is experience. There is no substitute for experience. Find out how long the agent has been in business. Has he/she ever been involved in a competitive-bid situation? Did he/she have the winning bid? Does he/she work full-time at real estate? Does he/she have references?
You may need to interview several Realtors before you find one who can answer “yes” to every question.
•Have a lender on speed-dial — Now that you have a skilled Realtor to guide you, the next step is getting approved for a mortgage. Unless you’re paying all-cash, you’ll need to be pre-approved for a loan to be competitive. You’ll want to have your loan in place by the time you make an offer.
Here, too, your agent can be an asset. Every agent will have several top bankers and mortgage brokers on their short list. This will save you the hassle of calling and interviewing lenders.
•Be prepared to make a fast & attractive offer — Go and see a home the day it goes on the market so you can act quickly if it turns out to be the perfect home. Your agent will advise you about making your offer as attractive as possible, including eliminating as many contingency clauses as possible and making timelines shorter for those contingencies you cannot eliminate.
•Have a home inspector on alert — I never recommend buying a home without an inspection, but making your offer contingent on an inspection can weaken your position if other buyers are waiving the inspection contingency.
If you’re serious about a home, you can arrange to have the home inspected before submitting your offer. Some buyers even bring a home inspector along on their first tour of the home.
•Consider an escalation clause — An escalation clause is an addendum to a purchase offer that automatically increases your offered price above the price of all competing offers, up to a fixed amount that you select. It can be a powerful tool in a bidding war.
These five tips will help you to be more competitive in today’s hot real estate market. An experienced agent will have additional strategies that can help improve your odds of winning a bidding-war. Prepare now, and you’ll be ready to compete when the next house comes along.
RAY AKERS has been a licensed Realtor for more than 25 years and is a lifelong Seattle resident. Send your questions to ray@akerscargill.com or call (206) 722-4444.