Bidding wars are very common in the current real estate market, most notably when it comes to higher-end properties that are in desirable locations. More recently, in the Seattle area aggressive bidding wars are more prevalent and can be very nerve-racking, even discouraging if you are on the losing end. Having watched hundreds of bidding wars over the past several years, there are a few results that are seen more often. The bidder coming in with the crazy offering price makes the decision simple – money almost always wins.
It is not uncommon to have multiple winners. In a typical batch of offers, there are usually low, medium and aggressive bidders with the aggressive bids landing in an extremely similar price range. When the money doesn’t sway the seller, typically they will look at other terms or intangible factors, some of which may be surprising to the buyers.
Let’s take a look at a few different scenarios, say a home is listed at $500,000 and the seller receives two separate offers up to $525,000. The seller now has a decision to make, but how? This is a situation in which the size of the down payment can make all the difference. As the bids came in Buyer A is currently able to put down a 20% down payment while Buyer B has 30% to put down as payment. This is a situation in which Buyer B will typically win. Even though both buyers are well qualified, sellers typically equate larger down payments to lower risk.
Opening bids matter when using an escalation clause
As the real estate markets heat up, it is normal to have competitive buying situations and bidding wars. Sometimes referred to as an escalator, an escalation clause lets the buyer say I will pay (x) amount of dollars for this home, and if the seller receives another offer that is higher than mine, I am willing to go up to (y) price.
This is a situation in which the buyer with the higher initial bid will most likely come out on top. If Buyer A decides to place an offer on a house for $510,000 with an escalation clause of $525,000 and Buyer B places a similar offer of $495,000 with an escalation clause of $525,000, Buyer A shows more of an interest in the house. When these two offers came in, Buyer B had an initial offer of $15,000 less than Buyer A. The seller sees there more interest in the home from Buyer A and possibly might even question as to why Buyer B came in so much lower than the asking price. Especially if in the past all the other offers are coming in much higher.
Highest and best offer is better than an escalation clause
One thing buyers love to use is an escalation clause. It gives them the ability to remain very competitive on the price without significantly over-paying. If two buyers enter a bidding war, one coming in at the asking price of $500,000 with and escalation clause of $525,000 and the other buyer comes in with a bid of $525,000 with no escalation clause, the seller will side with the higher bidder. This usually tells the seller that the higher bid has a genuine interest in the house. While this may not seem like a rational view, this is a very common scenario that has played out many times.
Beating another offer by $1000 is simply not enough
When dealing with high-priced homes, usually a few thousand dollars is not enough to sway a seller one way or the other. One advantage a buyer can leverage in this scenario is to get a little creative. Attaching a personal letter to the bid describing how much you admire the sellers home may be enough to tip the scales in your favor.
Personal letters to the seller can sway their decision!
Sellers typically will respond well to personal appeals. Writing a letter attached to an offer talking about how much you love the house and how you can see a future there for yourself and your family can carry a lot of weight. Selling a home is usually an emotional task, many times the seller wants their home to go to an owner who adores the home as much as they did, and also fit in as a good neighbor. In a tough market, a little compassion can sway the vote in your favor. As corny as this may sound, it may be the clinching factor in deciding who gets the home.
Who is most obsessed with the house?
Another tactic a buyer can leverage, especially if they really adore the home is to make multiple visits. Having an agent that is well-organized and is constantly in contact with the seller’s agent, shows them that there is genuine interest in this home. When entering a close bidding war, it is not always about the money, but how the game is played.