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7 Common Questions In A Bidding War
We are currently experiencing multiple offers on properties in all price ranges. People are willing to pay the asking price (and sometimes more) because interest rates are so low and they fear that rates will rise next year. In my experience, properties that are competitively priced aren’t staying on the market more than a week, and sometimes they sell in only one day!
If you are a buyer in an environment that breeds bidding wars, you’ll want to be prepared to paying even more if you wait longer to buy a home – not only because home values are rising, but because interest rates are bound to rise. You also will need to be ready to understand what factors create multiple-offer scenarios.
Here are 7 common questions you may need to answer the next time you find yourself handling a multiple-offer transaction:
1. “Is the listing agent telling the truth about multiple bids, or is this a tactic to get more offers?”
I always answer, “Maybe.” However, an ethical Realtor would not fabricate a story, and if you have worked with a particular agent in the past, you will know whether that agent is telling the truth. If you’re not sure, ask other agents willing to share their experience working with the listing agent.
2. “How much more should I offer?”
There’s no such thing as a crystal ball, but in general people are willing to pay up to 5 percent more than list price for a desirable property. If you believe the property will appraise at a higher value and this is the perfect home for your buyer, then they will see the value. Their fears will be diminished if you can support the home’s value with similar comparable sales.
3. “What’s wrong with the home? Why is it priced so low?”
This is your opportunity to know that under-pricing a home is a tactic some agents and sellers use to create a bidding war by quickly get a home under contract.
4. “How do I convince the seller to accept my offer?”
Make the offer easy for the seller to accept! Offers without repair contingencies are enticing to homeowners, especially if the owner already has relocated and can’t deal with coordinating bids and contractors. Unless you see something blatantly wrong with a home, it may be better to submit an “as-is” contract with right to inspect. This will allow you to cancel under the inspection contingency period on most home purchase contracts. If your contract doesn’t state this, there’s usually an addendum you can tack on.
5. “Why would I risk offering more than the listing price?”
First, make sure you have an appraisal contingency in the offer, even if the you are paying in cash. If the property doesn’t appraise as expected, the you will be able to renegotiate or back out of the contract.
If the property doesn’t appraise, the seller most likely will agree to sell it for the appraised value. The listing agent will explain to the seller that no one will want to purchase the home above appraised value, and that the same thing can happen with the next offer – thus, wasting more time. By the time the appraisal is done, the you have typically completed any inspections and are ready to move forward to closing.
6. “Why has the market become so competitive?”
Here in Philadelphia, our inventory is down to five months, which is half of what it was this time last year. This means that assuming no new listings came on the market and homes continued to sell at the current pace, the entire supply of homes would be depleted in five months!
7. “How does a seller create a bidding war?”
Sometimes sellers and their agents are pricing desirable homes on the low side, below market value, to create bidding wars and drive up the price. Sellers could wind up getting the same, or a little more, as they would have if they’d priced it higher. Seems like a “game,” but this strategy is what’s working at the moment.
What are your thoughts? Are you in the bidding war game?
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