Increasing the odds of coming out on top in a bidding war.
By David Tobenkin
Dear Mr. and Mrs. J,
My name is Lily and I am a 13-year-old who loves animals, “elbow room,” playing clarinet and horseriding. I love your house because it has the “elbow room” that I love while still being close to the middle of town. A few other reasons I like it is the space to keep our chickens, the apple trees, and room to have friends over. Thank you for reading my letter.
—Lily
By the time Lily’s two sisters and brother and their parents had written their own letters to the seller about why they wanted the house in the face of a competing bid—all before they had presented their offer—they had edged out the competition, says their agent, Cherie Kukhahn, CRS, a broker at RE/MAX Whatcom County, Inc. in Lynden, Washington. “When I sat down to present the offer, by the time I finished reading the five letters from my buyer, the seller’s wife was teary-eyed and wanted my buyers to purchase their home—and they had not even heard our offer!”
Buyers’ agents say that in a bidding war, it is not always the buyer who offers the most cash who walks away with the house keys, and that there are a variety of strategies for how buyers’ agents can improve the odds for winning a bidding war.
Winning Testimony
If you are going to use your buyers to tug at sellers’ heartstrings, do it the right way. Cherie Kukhahn, CRS, a broker at RE/MAX Whatcom County, Inc. in Lynden, Washington, says a recent testimonial by the kids of (ultimately successful) homebuyers featured letters that were handwritten on lined paper and that, while neat, did look like those of kids, warts and all. A cleaned up, typewritten version of the letters likely would have been less authentic and had less emotional appeal, she notes.
When a buyer’s agent pays attention to clues in the home, these observations can be helpful with the letter-writing strategies of prospective homebuyers.
“Sometimes we’ll play detective during the showing,” says Bob Gordon, CRS, a Boulder, Colorado-based agent at Berkshire Hathaway HomeServices. “For instance, with my buyer Alec, we noticed travel photos in the master bedroom. Alec wrote a letter to the seller talking about his recent visit to Italy and how the condo felt “Italian in style” to him. We ended up beating out a better-priced offer.”
Tugging at Heartstrings
Buyer letters, videos and other ways that connect sellers to buyers were cited by many CRSs as a key strategy in multiple-offer situations. “Had my clients not written those letters, and had I not gone personally to present the offer with the letters, I don’t believe that my buyers would have the home they fell in love with,” Kukhahn says. Houses become tied up with memories in the minds of many sellers, particularly longtime owners, such that sellers want to know that buyers will take good care of their house and continue to invest their experiences and meaning in it, she says.
Deciphering the Data
Ira Serkes, CRS, a Berkeley, California, agent affiliated with Pacific Union/Christie’s International Real Estate, was a research engineer at Chevron with two patents before he turned to real estate sales—and it shows. Looking at Serkes’ graphs establishing correlations between key sales data points can help buyers win a bidding war, Serkes says. First, such research can help establish the critical negotiating datum of the ultimate likely sales price. “We can estimate probable sales price based upon list price, current market conditions and buyer demand,” Serkes says.
Such research also highlights some effective bidding strategies and some to avoid. “We sometimes hear buyers say, ‘It can’t hurt to make an offer,’” Serkes says. “But it actually can. We’ve found from our research that sales prices are very dependent upon how many buyers make an offer, even more than recent sales prices. As more buyers submit offers, the final sales price increases, which means the next seller lists their home for a higher price than they otherwise would have set. That means there are times when writing an offer works against the buyer.”
The Listing Agent: Oracle, Not Adversary
Many agents note the importance of establishing a good relationship with, and deriving as much key information as possible from, the listing agent. The first key is to know if there are multiple offers on the property, and after that, the seller’s situation, needs and wants, says Kim Ratliff, CRS, managing broker at Everett, Washington-based Windermere M2 LLC.
“Call the agent and ask, ‘What would the seller like? What would make this easiest on the sellers?’” says Lori Fontyn, CRS, an associate broker at Coldwell Banker Residential Brokerage in Westminster, Colorado. “As a listing agent, I’m always amazed at how many agents send over an offer to me without even a phone call.”
Then there are the preferences of the listing agents, Ratliff notes. Sometimes a little accommodation goes a long way in getting the inside track: “Give the listing agent what they want so you are not negotiating with them as well as the seller,” Ratliff says. “For example, let them choose the title and escrow companies they like to work with.”
Thinking Outside the Box
Sometimes sellers have particular needs, and if the buyer can satisfy them, it can distinguish their offer. “I try to find other ways to stand out besides throwing thousands of dollars at it and paying the highest price,” Fontyn says. “I sometimes advise buyers to offer a “free” rent back to the seller, which they may want if they are waiting to close on a new house. I have found that offering to rent back the property can be much less costly to the buyer than going over the list price, which in our market could involve adding $10,000 to $15,000 to the offer.”
Showing Them You Mean Business
Agents advocate a wide variety of techniques to show the listing agent and sellers that their client is the safe, secure choice, even if it’s not the highest offer, including by demonstrating that both they and their clients are fully prepared. “I have my client prepared—I know exactly how high they will go,” says Therese Jenkins, an agent at Beautiful Homes Realty of Charleston in South Carolina. “I also build a great rapport with the listing agent. I let them know how efficiently I work and how prepared I am.”
Sweetening the pot on the front end through an increased down payment and more earnest money can sometimes avoid having to do so on the back end through a higher offer, some say. “If the homebuyer really wants the house, we provide a large amount of earnest money when the house goes under contract to show financial strength,” says Bob Gordon, CRS, a Boulder, CO-based agent at Berkshire Hathaway HomeServices.
Others similarly say that shortening timelines and avoiding contingencies can impress sellers and sellers’ agents. “I actually schedule the home inspection before I submit our ‘final and best’ so I can indicate we move quickly—I don’t ask for extras such as a home warranty, and I offer a large escrow deposit and a quick close,” Jenkins says.
Escalate
Ratliff says a mistake some agents make is capping escalation clauses too low or by overly limiting the amount of escalations. “When you escalate, go up enough above another offer to make it worthwhile for the seller to go with your buyer and make sure and use a high maximum number so that you stay in the running,” Ratliff says. “The maximum number will only go as high as it must and may never get anywhere near the number you fill in.”
There are a variety of effective strategies for outbidding your competitors, without necessarily defaulting to a higher offer. Intangibles often carry more weight with a seller than the amount being offered.
For more negotiation tips and strategies, check out a Win-Win Negotiation Techniques course near you.
