How to Make Competitive Bids

When you want to purchase a home in an area where housing is high in demand but short in supply, you may face a multiple-bid situation.  A multiple-bid situation occurs when a home is selected by two buyers who then place their respective bids in the hope that they will out-bid each other.  The outcome is extremely fortuitous for the seller, who receives more than the listing price for their home. But it is less than ideal for the buyers.

Your realtor will help you formulate competitive bids that will make the seller take more than just a passing glance at your offer. 

Multiple-bid situations are becoming more common than ever in many areas of the country. Northern California, New York City, and Washington DC and its surroundings are a few of the areas where there is very high demand for housing. As any good realtor knows, you must be educated about how to bid effectively if you want to win the bidding war.

Often it is not the highest bidder who wins the right to purchase a particular home, but rather it is the bidder who offers a competitive price and places the fewest restrictions on that offer.  Sellers often prefer to deal with a less-demanding bidder than with one who offers a higher sale price with more strings attached, contractually speaking.

Contingency clauses are an excellent example of the kinds of things that sellers try to avoid in multiple-bid situations.  Contingencies are contractual agreements made between the potential buyer and the seller that allow the buyer to back out of the transaction under certain conditions.  These conditions can be defined by the potential buyer, and obviously present a possible risk to the seller. 

The major risk is that the home will be under agreement and the buyer will decide not to buy. In this case, the seller must them re-list the home, pay any re-listing fees, and deal with the headache of having the home on the market for a longer period of time.

5 Tips to Making a Competitive Offer that Can Not Be Refused

Appeal to the Seller’s Emotions
Although a real estate transaction is about cash, don’t forget that the seller’s attachment to the home is also an important part of the sales process.  In a multiple-bid situation, potential buyers must find a clever way in which to stand out from the other bidder(s). 

Good realtors advise potential buyers to write personal and emotional letters to the seller, describing their family and proclaiming their love for the home.  Some bidders even include pictures drawn of the home by their young children.  The goal of writing this letter is to convince the seller that you will love the home just as much as he or she does.

Here is one fabulous example of an emotional plea that helped a bidder prevail in a recent home sale. A single mother was selling a home that she completely renovated by herself.  There were several bids for her home, yet she decided to sell it to another single mother who offered less than the top bidder, but who sent her a letter explaining her life and the importance of having a stable home for her children.

Do Your Research
An educated consumer is a successful consumer.  Do your homework. Research the area to which you plan to move.  Know in advance what the average home sale price is and what it has been in the recent past.

This little-known trick has helped many people to get the home of their dreams.  Most of the time, sellers list their home for an even dollar amount.  In return, they almost always receive offers in – you guessed it – an even dollar amount...

Always talk to mortgage lenders before you place a bid.  Sellers are more attracted to potential buyers who can truly afford the home they’re bidding on.  Know in advance how much your lender is willing to extend to you in a mortgage loan, as well as just how much you can really afford. 

Buying a home is an expensive proposition, and potential buyers tend to become excited once they find a home they like.  This excitement sometimes leads to buyers’ remorse and lands the buyers in hot water, when they find out that they cannot afford the home they are considering.

Save yourself – and the seller – the disappointment of a sale that doesn’t close. Know how much you can bid and accept the fact that you may be out-bid by more prosperous buyers.  It is better to be disappointed when you can’t afford to raise your bid than when you are unable to close the sale after your bid has been accepted.

Ask your Realtor for a List of Comparable Homes in the Area
Realtors consistently maintain lists of the homes which have sold recently in specific areas, including the one(s) that you’re most interested in.  The list almost always includes the seller’s asking price, the winning bid amount, and the actual sale amount.

In many areas, such as those listed above, buyers typically pay more than the asking price for homes.  In these areas, the seller anticipates a sale price that will be higher than the listing price. 

If you are going to bid in an area where this behavior is common, skip the competitive bidding process and figure out what the average overbid is in the area.  Add that to the asking price. Then you will know that you have put a very competitive offer on the table for the seller.

Find Out How Many People are Bidding on the Home
Once you know how many people are offering competing bids on a particular home, you stand a better chance of offering a successful bid.  When multiple bidders are competing, the sale price of the home will usually be greater than the asking price.  Assume that, due to competition, the larger the number of bidders is, the higher the overage percentage will be.

Never Offer an Even Dollar Amount

By making an offer of an odd dollar amount, you actually stand a better chance of having the seller select your bid.  To determine the best bid amount, use the information that you gathered when studying your realtor’s list of comparable homes.  Find the most likely overage percentage and then go a few percent points higher.  Just make sure that your offer is a nice, odd number. 

For example, instead of bidding $220,000, you might want to bid $221,300.  Looking at the two numbers, which one is more attractive in print?  At first glance, the second amount appears to be substantially higher than the first amount. 

Be a prepared consumer and an educated home shopper.  Especially in housing markets where you are likely to face a multiple-bid situation, you must be prepared to offer a competitive bid from the beginning.  This makes you more attractive to the seller and significantly raises the odds that you bid will be selecting, letting you buy the home on which you are bidding.

Never negate the emotional aspect of a home sale.  Realtors who have represented both sellers and buyers in housing markers where multiple-bid situations are common will tell you that this is often the key to closing a deal.

Always feel free to contact your realtor for additional information. He or she has years of experience that can help you offer the most effective bid price.