Bidding Wars Without Waived Contingencies or All-Cash Offers
Frustrated homebuyers often drop contingencies or break their budget to secure a listing. But other variables could give them an edge in a seller’s market.
SEATTLE – Far more buyers than sellers makes today’s housing market one of the most competitive in history. In some areas of the country, more than half of all offers enter into a bidding war.
A Redfin survey of its agents asked for suggestions to help buyers who inevitably compete for a home. They listed the tactics that go beyond basic bidding-war techniques, such as waiving contingencies, offering all cash, making an offer above the asking price or offering free rent back. Buyers should still consider those options, but also these:
Consider buying a condo rather than a single-family home
Buyers have less competition for a condo, in part because they often share some community spaces and amenities. In January, 58.7% of single-family home offers written by Redfin agents faced competition, compared with 54.8% for townhouses and 44.6% for condos. Condos have been selling for a record 17% discount compared to single-family homes, another potential draw for buyers.
“Condos are still 110% a buyer’s market,” says Seattle agent Sarah Rollinger. “I have seen a lot of canceled condo listings, so we have quite a backlog of condo sellers on top of the current inventory.”
If you can’t waive contingencies, sweeten them
- Shorten the contingency timeline: One of the best ways to make an offer more competitive is to waive contingencies, such as the inspection contingency and the appraisal contingency. But that adds risk on the buyer’s side, and those who don’t feel comfortable doing it can instead opt to expedite the contingency timeline, meaning they agree to wrap up their inspection or appraisal more quickly than normal.
- Sign a low-appraisal addendum: If a buyer can’t waive the appraisal contingency, another option is to cover the difference if the appraisal comes in low. For example, if the buyer offered $400,000 and the appraisal ends up at $375,000, they can agree to cut a check for $25,000 when the deal closes.
Consider making sight-unseen offers
Speed is key in a seller’s market. Video tours and 3D walkthroughs have made sight-unseen offers more feasible during the pandemic. Almost two-thirds (63%) of people who bought a home last year made an offer on a property that they hadn’t seen in person, the highest share since at least 2015 and up from 32% from a year earlier, according to a survey commissioned in November and December.
“My client lost out on even seeing a house because the seller accepted an offer before starting showings,” says Colorado Springs, CO Redfin agent Ashley Farrell. “The listing went active Tuesday and showings weren’t scheduled to begin until Thursday, but the seller received five sight-unseen offers and was under contract by Wednesday afternoon. The winning bid was all cash, $45,000 over the $380,000 asking price, and (it) waived the appraisal and inspection contingencies.”
Choose an agent and lender willing to communicate
In a fast-paced real estate market, constant communication is essential. Buyers should work with agents and lenders willing to keep in contact with the listing agent to gather intel about what the seller is looking for and ensure that the seller knows the buyer is serious.
Start low, bid high
A lot of successful buyers win by making an offer that exceeds the asking price. But this also means a lot of buyers exceed their budgets. To prevent this, San Diego Redfin agent Jim Johnston recommends searching only for homes that are $50,000 to $75,000 below what you can afford, so there’s room to negotiate if necessary.
Once you’ve identified those properties and are ready to start bidding, research recent home sales in the area to determine how much the typical winning bidder offered above the asking price. Then offer more.
“If most winning bidders in your area are offering 5% more than the listing price, then offer 6%,” says Raleigh, NC Redfin agent Pam Lewis. “And make your offer amount an odd number.”
Consider releasing earnest money early
Earnest money is a deposit buyers put down to show sellers they’re serious about purchasing a home. Typically, a buyer deposits this money into an escrow account when they go under contract on a home and it’s applied to the purchase price at closing. In today’s competitive market, however, some buyers offer to release these funds earlier as a non-refundable deposit for the seller – typically within a few days of going under contract.
“This is an enticing offer for many sellers because it means they immediately receive and can keep the funds regardless of whether the transaction closes and can put those funds toward the purchase of their next home if needed,” says Seattle Redfin agent Heather Stovall. “Of course, releasing earnest money early can be a risky proposition for buyers. If a buyer’s financing falls through or they lose their job and can’t complete the purchase, they don’t get the earnest money back after it has been released.”
Offer to pay some of the seller’s costs
Homebuyers can make their offers more competitive by offering to pay for expenses typically covered at least partially by the seller.
Prepare to lose before you win
It’s more likely than not that any single buyer will face a bidding war. As a result, it helps to go into the process mentally prepared to lose more than once.
“I have clients who have been trying to buy a four-bedroom single-family home in the $650,000 to $800,000 range since November,” says Alexandria, Va. Redfin agent Matt Ferris. “They started relatively conservatively, offering just over the asking price and maintaining some contingencies. Three months in, they’d submitted seven failed offers and came around to being very aggressive. They finally got an offer accepted on a home this month. The home they have under contract is very nice, but smaller than the first one they bid on, and they’re paying $10,000 above what that first home closed for. They also had to bid on it sight-unseen before it came on the market and waive all contingencies. It’s a lesson in making offers as strong as possible early in the process.”
It’s also wise to know when to walk away. It’s OK to put a search on hold if a buyer reaches the point where they’re not comfortable making the aggressive offers often necessary to win in today’s market.
Some buyers and agents are going to great – and unusual – lengths to win bidding wars:
- “I’m working with a hop salesman who is offering beer tasting to the sellers.” – Ellen Hudson in Portland, OR
- “I researched the seller and found out he’s a former professional athlete. I fine-tuned the offer so that his jersey number – 64 – was included in the offer amount ($964,000 Canadian dollars) and the deposit amount ($64,000 Canadian dollars). We ended up beating out a higher, all-cash offer.” – Michael Craigmyle in Vancouver, B.C.
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