The first bid comes in moments after the listing goes public.
A short time later …
Another bid comes in.
A little while later …
Two more bids appear.
Three bids surface.
The next day …
Four bids are added to the collection.
By the end of the week …
A full-fledged bidding war has erupted.
How do real estate agents effectively handle such scenarios?
How do they win when markets are in strong demand, with low supply?
First, they prepare a battle plan.
The initial phase requires instinct, anticipating the coming confrontation when word leaks out that two or more buyers’ agents have already forwarded offers to listing agents.
Step two is knowing the terrain. When the seller is presented with the first few offers, his or her agent will likely ask prospective buyers to “sweeten the deal.”
Some sellers stage several rounds of negotiations before one side raises a white flag.
How to help clients win
“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”
- Sun Tzu
When a bidding war breaks out, here are strong strategies to ensure you win the day.
Strong market knowledge
When a seller inquires about recent neighborhood deals, this is when you can show your wealth of market knowledge.
Obviously, a lot of top deals are executed at the beginning of housing bubbles, and informed agents will know at which stage of the bubble the deal is: front, middle or back. It’s to the agent's advantage to discover the seller's true sweet spot.
When the right questions are asked, an offer can be prepared partially based on how eager the seller is to close. Little bits of knowledge can seal a deal.
Money talks – loudly
By ensuring a buyer’s finances are in order, a quick cease-fire to a bidding war could come if the deal’s basic details are in order. It’s also important to know what loan options are available to help determine long- and short-term benefits and deficits.
Escalation clauses included
Let the war games begin. Escalation clauses are formed around incremental increases over the top offer. With a cap in place, escalations of, for example, $5,000 up to a max offer. The intelligence gathered from this tactic can also be used to determine fair deals in the current market bubbles.
For agents in the midst of a bidding frenzy, when 10 or more peers are vying to concoct the perfect bid, it’s key to keep your clients focused on their initial inspiration for owning the property. To keep all parties calm during what could be an extended deadline, reference images of the buyers raising a family at the home. It works.
“Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby, you can be the director of the opponent's fate.” — Sun Tzu
Prepared buyers can win a bidding war. Here are seven drills an agent can do to help buyers gear up and
- Begin confidently: Agents need to qualify buyers responsibly. By understanding exactly what they can afford, buyers can make reasonable offers without significantly overshooting the target.
- Mortgage contingency plans: Be careful with this one. A lawyer, in many cases, should be consulted. Most sellers need to be confident in the probability of a potential buyer obtaining financing. Still, without mortgage contingencies, buyers could risk losing the deposit.
- Preapproved mortgage: By having a preapproval letter in a buyer’s arsenal, it’s proof financing likely will be obtained.
- Being Flexible: Advising potential buyers to remain open to different closing times could prove to be a deal-maker. Say a seller needs a little more time to settle affairs. By ensuring them extra time, it could mean the difference if the top two bids are only a little bit apart. The same if the property has been vacant and the sellers are motivated to close – in a hurry.
- Limit contingencies: When multiple offers come flooding in, sellers have the immediate advantage. When submitting bids, keep them precise and to the point. Try to avoid too many demands, which could complicate the deal and make it difficult for the sellers to decide.
- Writing love letters: A trendy tactic of including positive reference letters with offers has helped in many instances. But don’t believe the love letters will distract sellers from the deal’s bottom line.
- King cash: The absolute best way to win a bidding war? Throw down some cash. The more, the better. Nothing speaks louder and carries more prestige.
“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” — Sun Tzu
They say all is fair in love and war. Well, not all agents agree.
Some agents do underprice properties routinely. It’s one of the industry’s oldest tricks to spark a bidding war. Others, however, think the practice, when taken to extremes, can be unethical.
What’s the term? “Price it low, watch it go. Price it high, watch it die.”
By purposely lowballing the listing, the hope is a flurry of offers will create an offer frenzy and drive up the price, and of course, commissions.
The strategy has proven effective with distressed properties, such as short sales and forfeitures.
Responsible agents will list certain properties on the low end and are careful not to cut too far below the actual selling range.
While you're busy focusing on winning bidding wars and getting the best price for your buyers, you don't have time to be bothered with mundane tasks like cold-calling and posting on social media.
Consider hiring a virtual assistant. In our book, you'll learn:
- How to get Virtual Assistants to prospect and set up listing appointments for you.
- How to get Virtual Assistants to pull new seller leads for you. They can pull those great, hard-to-find seller leads that you can list with no competition.
- How to get Virtual Assistants to help with all of your administrative work.