In A Bidding War? How To Make Your Buyer’s Offer Jump Off The Page
The perfect storm of the COVID-19 pandemic, historically low interest rates and millennials hitting the prime age to purchase a home has taken the multiple-offer frenzy nationally.
What does it really take to win when there are 10, 20, 30 or more competing offers? Last week, at Inman Connect, speakers outlined what agents need to do to succeed in today’s heated market.
If you’re ready to make the winning bid on the next multiple offer you write, try implementing as many of the following best practices — as covered in a handful of different sessions — as you can.
1. Start with the basics
According to the speakers at Connect, many offers fail because of careless mistakes the agents make. Here are some of the most common ones:
- Failure to completely fill out the purchase agreement, agency disclosure or other required documents.
- Submitting sloppy, “chicken-scratched” offers rather than a clean offer package that has a cover letter outlining the key points of the offer, the buyer’s financial qualifications, contingencies waived and any other seller concessions.
- Failure to provide documentation showing the buyer has adequate financial reserves to qualify for the loan plus covering any difference resulting from a low appraisal.
- Drafting provisions such as the release of the earnest money deposit themselves rather than using an attorney or a preapproved form from their association, multiple listing service (MLS) or brokerage.
Greg McDaniel shared two strategies that have helped him to win repeatedly on multiple offers.
- As soon as you submit your offer to the listing agent, have your mortgage lender call the listing agent five minutes later, introduce themselves and offer to provide any additional information the sellers may need to secure the offer.
- McDaniel also sends two gift cards for a dinner at a local restaurant, one for the sellers and one for the listing agent. This draws attention to his offer while increasing his rapport with the listing agent.
2. Set buyer expectations upfront
In a session called Lessons Learned: How to Manage Expectations and Set Your Clients Up for Success, Michelle Humes of eXp explained the importance properly setting buyer expectations upfront. For instance, if her clients’ budget is $350,000, Humes said, she only shows them houses priced at $300,000 because that’s what it takes to win in her market.
In the past, buyers would’ve been able to write an offer $10,000 under the purchase price (with three stipulations and a request of a termite letter), but today, they should be prepared to write an offer over the appraisal with no stipulations, Humes said.
Humes said she also tells her buyers that submitting a winning offer may also require putting down a nonrefundable earnest money deposit, in addition to waiving the loan and appraisal contingencies, even though she generally advises against doing this.
3. Assess the buyer’s motivation
Therese Antonelli, broker-owner of Moving the Mitten, recommended using the question below to assess the strength of the buyer’s motivation. Given the market’s war-like atmosphere, Antonelli asks the buyers to drop a house into one of three buckets:
- Do you like it?
- Do you love it?
- Do you have to have it?
“If they like it or they love it, well then, we’re going to be put the offer in, and there’s going to be no tears when we lose,” Antonelli said.
On the other hand, if the buyers look at her and say, “My mom and dad live next door, and they’re my babysitters” or “I have to have this house because my child goes to a special school, and it’s literally at the end of the block,” that’s when she tells them, “All right, ask mom and dad how much they can put in and also be prepared to pull everything from your 401(k). That’s how we will go in and win this offer.”
4. Build relationships with other local agents
It’s always smart to build rapport with the other active agents in your local area. Jeff Lobb, founder and CEO of SparkTank Media, explained that they have their own hotlist of people they love doing deals with — and that comes from establishing rapport and building relationships.
This is especially important as an increasing number of out-of-area agents are writing offers in areas where they lack market expertise. Rachel Bucci, Realtor with BHGRE PorchLight Properties, said although some clients know and are familiar with a certain neighborhood, their out-of-area agents don’t.
On the other hand, a local agent she’s worked with before — someone who uses reliable local lenders and gets things done — is the agent she knows will get the deal to the closing table.
5. Call the listing agent, and ask questions to uncover what matters most to the seller
Examples of questions to ask include:
- When would your sellers like to close?
- Do your sellers have somewhere to move when they close? If not, would a leaseback be useful? And if so, for how long?
- Do you have any special forms or language your company requires regarding leasebacks, contingency waivers, earnest money deposits going live, or escalation clauses? (Be sure your manager or attorney reviews these, preferably before you write the offer).
It’s also important to discover how tough the competition is by asking:
- How many offers do you have in hand?
- Did you write your own offer on this property?
- Did anyone in your office write an offer on this property?
Be sure to write your offer so it reflects exactly what the seller wants.
6. Use a win-win strategy that makes your offer stand out and minimizes appraisal issues
In an Inman Connect session titled How is the Inventory Crisis Going to End?, Kendall Bonner, broker-owner of RE/MAX Capital Realty, advised that sometimes the best offer is not the highest offer.
Based on this idea and other concepts discussed during these sessions, here’s an entirely different way to structure the transaction that’s a win-win for both the buyer and the seller.
Assume a property is listed at $500,000, has a 5 percent commission, and the buyer is willing to bid up to $550,000. Here’s how to structure the transaction so your offer will definitely stand out.
- The buyer offers $500,000 plus paying the commission and the closing costs of $35,000 (approximately 7 percent of the $500,000 purchase.)
- In addition, the buyer agrees to pay the seller an extra $15,000 in seller concessions that the sellers can use to cover the cost of their move, pay off part of their current mortgage, or any other cost tied to the sale.
- Here’s the win-win: If the seller paid the commission and closing costs on the $550,000 offer, it would have been $38,500. At $500,000 the seller would have paid $35,000. This option nets the seller an extra $3,500.
- For the buyers, if the property tax rate is on full value at 3 percent (as it is here in many parts of Texas), instead of paying $16,500 in property taxes, the buyer would pay $15,000, a net savings of $1,500 per year or $15,000 over 10 years.
In another session, Lobb explained how even a $5,000 seller concession can make your offer stand out. The first time he saw someone use this approach, the psychology was different from just raising the price.
Lobb said that when the sellers realize they can use this money to pay their closing costs, moving fees, title insurance, etc., that little bit of psychology puts you in a different position and helps you get attention. The sellers also think it’s a big bonus because they won’t have to pay commission on that amount.
Caveat: Always advise any client who works with you to review the tax consequences of their sale or purchase with their tax professional, preferably before signing any contracts.
It’s also smart to review any unfamiliar forms or large seller concessions with your manager, broker or attorney to make sure everything is being handled properly.
7. Present your offer well
In another Inman Connect session, Willie Miranda, broker-owner of the Miranda Real Estate Group, emphasized why it’s important to make the listing agent’s job as easy as possible.
When you’re the listing agent and you have 30 offers, you don’t want four different emails from every single buyer’s agent. Instead, you want one email that explains things correctly, has everything attached, and looks nice and crisp.
What’s more, it’s important to let the listing agent know that your buyers are flexible and are willing to work with the seller to meet their needs. Antonelli has used the following strategy to have her offer become the winning bid: “My final line of the offer was, if you’re close to highest, please reach out to me and let me know if there’s something further we can do.”
In her case, when she got that call, it was a matter of $5,000 on a half-million-dollar house. She called her clients, and they agreed to go up another $5,000. They got the deal. It’s always important to let the listing agent know your clients may be able to go stronger to be the winning bid.
8. Always be learning
Humes shared a surprising story about a group of buyer’s agents who had lost on a multiple offer. A group of agents from a cooperating company walked into her office and asked to meet with one of her listing agents. They wanted the listing agent to walk them through what they could have done to win this offer.
“To me … that’s an agent I want to work with, right?” Humes said. “That’s an agent who’s learning-based, who’s problem-solving-based — and I was so impressed with that.”
Something else to keep in mind. If the current offer doesn’t work out, who will that listing agent be most likely to call?
If you’re ready to win the next time you’re in a multiple offer, pay close attention to the details, discover what matters most to the seller, contact the listing agent to find out about the competition, and consider using a seller concession to sweeten the deal.
Bernice Ross, President and CEO of BrokerageUP and RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.