At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Bidding wars are high-stress, high-stakes situations, yet thankfully have little in common with mortal combat, despite their dramatic moniker.
In fact, bidding wars are quite common all over the country in a seller’s market. Cities like New York, Seattle, and San Francisco are known for their competitive real estate, but smaller metros are also seeing multiple offer situations as a result of the economy’s good health.
While the laws of supply and demand can put bargaining chips in the hands of a homeowner, in any type of market, it’s possible to overplay your hand and cause buyers to look elsewhere.
If you’re so lucky as to generate multiple offers on your home, it’s a delicate dance all the way to closing. You need to stand firm and negotiate the best deal—without recklessly wielding your newfound power (or getting taken by a flakey buyer who can’t follow through on their big promises).
Here we’ve condensed top agents’ best advice for handling a bidding war on your house so that you don’t make any sacrifices. Ultimately, you want to walk away with the price you’d hoped for and the details of your contract perfectly intact.
How to generate multiple offers on your home
Spark a bidding war and suddenly the power’s in your hands. Your full asking price is no longer a pipe dream but a distinct possibility. What’s more, buyers may be willing to tailor an offer specific to your needs to close the deal on the house of their dreams.
Once you have a number of interested buyers, there are several things you can do as a seller to get the best possible offer on your listing, but let’s not get ahead of ourselves. Your house must first attract eager suitors—and several factors (some in your control, and others outside of it) will make all the difference.
Bidding wars happen naturally in a seller’s market
First off, bidding wars don’t happen in a vacuum—market conditions play a huge role.
Barry Kunselman, a top real estate agent in Denver, Colorado, who sells homes 47% faster than his peers, explained the bidding war situation in his market during the hot selling months of April and May.
“If you’re in the price point $450,000 or less, 10-15 offers is pretty common,” Kunselman says. “Even in the neighborhood that I live, if you’re $550,000 or less, and you have a really nice house on a great lot, you can easily get 10 offers.”
“What happens is these properties hit the market on Thursday or Friday,” Kunselman explains.
“They won’t get any offers, and then all of sudden they have multiple offers on Monday and Tuesday. All the buyers that went for another property missed out, and now they’re coming back to their second choice, generating 3-4 offers by the next week.”
The scenario Kunselman describes came after a long stint of rising home prices and shrinking inventory in the red-hot Denver market, where the number of buyers far outweighed the available number of homes for sale.
These market dynamics indicate a seller’s market—understanding them is useful to you and your agent when arriving at a price.
Access to the multiple listing service (MLS) gives your real estate agent a detailed picture of the local market, but a good agent will also know just how to pique buyer’s interest.
Understand how price drives demand
Coming up with a fair market price is a crucial first step in listing your home and generating multiple offers.
Your real estate agent will examine comps in the area to make sure you don’t price your home too high and lose buyer interest.
However, if you want to encourage a bidding war, try undercutting your price. Don’t go too low though.
If a house a priced too low, buyers may wonder what’s wrong or present offers below your asking price.
Build hype around your listing with a marketing blitz
Another effective way to get multiple offers where demand is high is to build some hype before putting your listing on the MLS.
Go nuts and market your home using all the outlets available to you—printed materials, professional photos, newspaper ads, and all the social media platforms you’re on.
Once you’ve done your part, it’s time for your real estate agent to take the reins and put your house on the MLS.
You and your agent can agree to defer showings to build hype even further. Think of it as a drumroll that lasts considerably longer than usual. Standard bidding war on house advice says to schedule showings late in the week.
Don’t stop there!
A good agent will know just what to say to buyers’ agents to get the best offers. Typically, this means mentioning that strong offers are on the table but leaving out any details, according to the Washington Post.
It’s OK to play coy when your house is the belle of the ball.
Have your agent host a broker’s open house
Hosting a broker open house is a great way to spread the word about your listing, and all you need to do is stand back and let your agent work their magic.
They will know just who to notify and how to get them to show up. The more real estate agents, the merrier, especially when you want to bring in a wide variety of offers.
As with general open houses, too, a great real estate agent will make your home shine with expert staging.
Set a deadline to create a sense of urgency
Turn up the heat and show the market that you mean business with a deadline. If done correctly, you’re likely to see an influx of competitive offers, as the sense of urgency tells buyers to bring their A-game.
However, this is not a surefire strategy when done hastily. Your agent should first confirm that your home is priced just right and that offers are soon to come.
Once a few have come in, your agent will spread the word using the MLS and their many connections that you, the seller, are looking for top-notch offers by a certain date and time.
Overlap showings to highlight buyer competition
Want to turn up the heat even more? Let potential buyers see their competition—or at least their presumed competition.
This could mean inviting people you know to your open house even if they have no intention of buying.
Another trick is to overlap your showings to create the illusion of a tight schedule that can barely accommodate your many interested buyers. Feel free to really ham up just how busy you are.
How to Handle a Bidding War
Seeing all offers made on a house at one time not only levels the playing field for buyers, it also allows the seller to make a more informed decision.
Actually, this bundling is required by law in most states. If no one offer stands out to the seller, they can then have the bidders duke it out—though not literally—sometimes for several rounds of bidding. There are several things sellers should take into consideration before accepting an offer.
Money isn’t everything
This ain’t no auction. The final agreed-upon purchase price is undoubtedly important, but be sure to keep an eye on the earnest money deposit as well.
A large deposit is a good indication that the buyer is committed. Depending on your circumstances, there are other ways of sweetening the deal.
For instance, a buyer can remove all or some contingencies on the sale or present an offer that suits the seller’s timeline; that is, they can offer a more expedient closing or give the seller the option of remaining in the house for a set period of time.
Ask: Can the buyer truly afford your house?
Let’s say you’ve played your hand well and are now looking at several competitive offers. Keep in mind that sometimes buyers will make an offer that’s too good to be true out of desperation.
To avoid this situation, insist on a mortgage pre-approval as opposed to a mortgage pre-qualification.
Pre-qualification only determines the likelihood of qualifying for a loan. At this stage, there have been no checks on the buyer’s credit or income.
On the other hand, mortgage pre-approval is far more comprehensive and signifies that an application has been sent to a lender and the buyer’s income data and credit are under review.
What if the appraisal comes in low?
A low appraisal can really throw a wrench in your bidding war. Even if a buyer makes an impressive offer, their lender will only care about how much the house is worth according to the appraisal.
And if that appraisal comes in lower than the asking price, the buyer may find himself needing to put down a significantly heftier down payment. This could lead to a renegotiation of the purchase price or to the buyer taking their offer completely off the table.
Dealing with cash offers
Loans are far and away the most common way of financing a house. In fact, in 2017, only 21% of residential sales were paid for in cash.
But if you’re lucky enough to receive a cash offer, you should seriously consider it. Even if the offer comes in lower than the others, you get to avoid many of the headaches associated with a buyer taking out a loan, bypassing the appraisal process and closing the sale fast.
Buyers can increase the appeal of their offer by including an escalation clause, which comes in particularly handy when several other buyers are interested.
This means their offer price will automatically escalate higher than competing offers. Escalation clauses tend to stipulate the increments by which the price increases as well as how high the buyer is willing to go.
These are common in very competitive markets.
Home sale contingencies
Contingencies are sale conditions that the buyer sets and they can come in many forms. While contingencies are meant to land a deal that benefits the buyer, removing them from an offer will make it more attractive to a seller.
One contingency may be that the buyer’s home must sell before they can purchase yours. Another common one is a home inspection. You can gauge the interest of the buyer based on the number of contingencies they’re willing to waive. As a seller, fewer contingencies means fewer problems.
Follow this advice on handling a bidding war for flawless execution
When all is said and done, multiple offers are a seller’s best friend. But don’t get cocky, kid. If you want to successfully start and execute a bidding war, partner up with an experienced real estate agent and follow all the conventional wisdom so you can sell your home on your terms.
Article Image Source: (Anna Demianenko/ Unsplash)