Bidding wars can be exhausting and disheartening when working as a buyers agent. Being informed on bidding wars helps agents serve their clients to the best of their abilities. A bidding war (in case you're learning the ropes) is when two or more buyers are competing for the same home and making offers higher than the sales price, sometimes multiple times.
When a bidding war is going on around a property, the stakes can be high and more often than not - almost everyone is disappointed. Read on to learn some best practices when it comes to bidding wars.
Come In Prepared
In a seller's market - bidding wars are bound to happen. In fact, Redfin.com states that 56% of buyers engaged in a bidding war in 2020 and 2021. That's a very high number of home-buying hopefuls that went head to head for a singular property. Now, an agents job is to be prepared to guide their clients through any and all circumstances and to ease the process. This gets exponentially more difficult when bidding wars come to fruition. But, not all is lost, take heart. The single most important thing an agent can do is prepare their clients - over prepare, if you will.
Before even submitting an offer, be sure to get clients pre-qualified for a loan so that once the buying begins - nothing slows it down. Get clients pre-approved for loans as soon as possible. This also narrows the gap for the houses clients should be looking to purchase, which helps in overall efficiency. Once the financing is all set to go, make sure the down payment is lined up and accounted for - and when it comes to bidding wars; the higher amount down payment the better.
Be Realistic
If your buyers can pay in cash - great. Submit a high offer, one with limited contingencies and buyers have a much higher chance of getting picked. If this isn't the case - and don't worry, it's probably not for most buyers than it's time to get realistic. As an agent supporting buyers in times of a bidding war, it's important to help them right a strong offer. A strong offer should of course, appeal to the seller, but should also be realistic.
A realistic offer might not need to drop all contingencies but can still be flexible with the seller. A good agent can advise their buyers on how best to proceed to get the deal closed without the dreaded back and forth.
An interesting trend for offers lately is an escalation clause. Some buyers may not know about them, so it is your job as an agent to educate your buyers. If a buyer can afford an escalation clause, they can submit an original offer and say that they are willing to go $10,000 higher than the highest offer. But be careful - most buyers can't truly afford this.
Now that you've got your buyers offer as high as it can be, with maybe an escalation clause in tow (or not), have them write a personal letter. A personal touch may mean more to a seller with emotional attachment to their home. If your buyers are really desperate - you can submit an offer on their behalf that drops all contingencies or even declines a home inspection. This may not be for all buyers; but we're here to educate agents on bidding wars and what they may require.
The Bottom Line
In a competitive market fueled by a dropping economy, low inventory, or some other variant - it is crucial for agents to prepare themselves and their clients. Bidding wars are far from ideal for buyers but at times they are inevitable. Maintaining realistic expectations when it comes to budget, home prices, and the timeline for purchasing a home are key. There's no need to overcomplicate this already intricate and important process of buying a home. Be prepared to support your clients through bidding wars and as always, stay positive. Be flexible and get ready to bid!
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