Bid on a
It would be great if you could match buyers and sellers in one shot – BOOM! Listing love connection! Unfortunately—and especially right now in this seller’s market—it’s not always that easy.
Throughout your real estate career, many of your buyers will need you to navigate a “bidding war” on their behalf. But how does bidding on a house work? In this article, I’m going to answer some of the most popular questions on bidding. This way, you can make sure you’re doing everything you can to help your buyers secure the home of their dreams.
How does bidding on a house work?
When there’s more than one interested buyer for the same house, you’ll want to inform your buyer that they’ll likely need to submit a bid. Prepare them for the process by talking about their budget and determining a good starting amount.
You don’t want to go all in and drop the whole budget amount in one fell swoop. The first offer should always be lower than the budget. This way, you have room to increase the offer if your client is outbid.
Bidding on a house begins by submitting an offer letter to the seller that states your starting bid. Make sure the offer letter includes all the conditions under which you agree to purchase.
Sometimes your buyer’s conditions can cause them to win the bid EVEN IF their price wasn’t the highest. For example, your buyer may be willing to push back a move out date or cover the home inspection fees.
You’ll also want to include any contingency clauses that your client feels are necessary. Clauses could include requiring the buyer to have the house appraised or inspected before an agreement to purchase.
Keep reading for some additional factors to consider when helping clients decide how to price their starting bid.
Find out how many properties are for sale in the same area, how long they have been on the market, and what the average selling price is for similar properties.
Length of time on the market
If the property your buyer is interested in has been on the market for a long time, the seller may be ready to accept a lower offer.
Updates and repairs
If you know that the home needs updates or repairs, you could encourage your buyer to consider adding a contingency clause addressing those issues or researching what the updates and repairs would cost and offering less money to the seller.
Pay to have your own home inspection done. This will cost the buyer a little money. But it could prove useful as a negotiating tool when it comes to determining fair market value. And it could end up saving them thousands in the long run.
Be prepared. Contact the seller’s agent to see if there are a lot of other interested buyers. If there are other interested buyers, you might need to make a stronger offer from the get-go to get an edge.
You may also want to help your buyers decide on an escalation clause that allows you, their agent, to bid on their behalf up to a certain amount. This is very helpful if there are other serious buyers who are actively bidding. The clause makes it so you aren’t the go-between in a back-and-forth with the buyer and seller.
Once you’re ready with a solid starting bid, there are some strategies you’ll want to propose to your clients that can help ensure they’ll be the standing winner when the bidding dust clears.
Get pre-approved for a home loan
If the buyer needs a loan to purchase, make sure they get a pre-approval letter from a mortgage lender stating the amount of the loan they qualify for. A pre-approval letter increases the chances of winning a bidding war because it gives the seller confidence that things will move forward if they accept your bid.
No seller wants to be in the position where they’ve accepted a bid, only to find out they have to start all over again because the bidder ends up not getting approved for the amount they bid. And you don’t want to be in the position to have to tell them.
Consider offering a cash sale
Many people are unable to offer a cash sale. So if your buyer can, their bid becomes exponentially more appealing to the seller. With a cash offer, the seller doesn’t have to worry about problems with a mortgage loan because there is no lender involved, and they can close the deal faster.
Write a letter to the seller
Putting a home on the market can be a very emotional time for a seller because of the memories they have linking them to the home. Having your buyers write a letter to the seller can be an effective way to create an emotional connection and reassure them their home will be loved and cared for.
Have your buyer include their name, profession, and a little story about their family. They can also talk about the home and the things they really love about it. A personal letter really helps your buyer stand out in a crowd of buyers and be seen as a person and not just a number.
Remember, people hate being sold to, but they love shopping with friends!
Carefully evaluate counteroffers
If your buyer’s first bid gets countered, make sure you carefully evaluate every aspect of the counteroffer before making your recommendation to the buyer on how they should respond.
Could your buyer rethink any concessions they had? If the seller isn’t willing to make the repairs requested, is your buyer willing and able to make them? Is there anything else they would like to add as a negotiating tool?
Bidding wars can be over in the blink of an eye, or they can persist for some time. Keep in mind, it is a process, and this process continues until both the buyer and seller are comfortable. It’s all worth it once the deal is done!
You can learn more real estate sales tips inside our core course, Sell It Like Serhant.