It is no secret that the Covid pandemic has changed the dynamics of the real estate market. Nearly overnight, densely populated areas are seeing tenants and owners flee to local suburban and rural neighborhoods. Here at the Jersey Shore, our fresh air and beaches are greatly attractive to residents of Philadelphia and NYC, both just a little over an hour — yet worlds — away. This buyer urgency, combined with an already low housing inventory, has heralded the return of the bidding war. Some agents, even those in the business for a decade or more, have never seen a bidding environment this passion-driven. When have the stakes been higher?
With 20 years of transaction experience, I have seen just about every type of situation involving multiple offers. Here’s our practical advice for agents competing in a bidding situation.
If you are representing the seller
A good indication that your listing may receive multiple bids is the amount of attention it gets as soon as it hits the MLS. If you are seeing pointed inquiries right out of the gate, make sure you have a plan in place for sorting, evaluating and selecting the best buyers. Ten competitive offers for your seller sounds awesome, but it can also create a lot of chaos unless you take the lead.
Coaching your seller
If your seller has bought or sold previously, chances are they may have done so in a less dynamic market. Helping them understand some key concepts up front will make the process go smoothly and will also demonstrate your value as their advisor. It is extremely important that they recognize that you are on their team and are lending wisdom to the transaction. In a bidding war environment, it is easy for sellers to get overwhelmed, so they should feel good leaning on you.
Help your sellers understand the characteristics of a solid offer. Besides the financial terms stated in the offer, sellers need to be clear with their requirements on things like timing or other restrictions. This is also a good time to introduce the seller to the concept of a highest and best submission as an efficient and effective method of getting quality bids within a short period of time, so they can be evaluated fairly.
Helping sellers evaluate offers
Imagine your seller has three full price offers, and on paper, they look very similar. Now you need to help your client decide which offer is the strongest. Here are some questions you can ask the buyer’s agent to help your client differentiate between offers:
Is there anything that would make your buyer cancel this deal? For example, are they currently in negotiations to sell their own home? Have they made an offer on any other home?
Is there anything that I don't know? For example, are the buyers offering at the top of their budget? Do they have a property to sell, with or without contingency?
How long have they been looking for a house?
For example, buyers who have been looking and have lost out on a recent transaction are more aware of the current market environment and may be a bit more motivated.
Do they have a team in place?For example, do they have a real estate attorney and home inspector ready to go? Have you worked with them in the past? A good team can make all the difference.
Can I connect with the mortgage broker? Getting an endorsement from a loan officer is a great message to deliver back to the sellers.
If you are representing the buyer
Bidding wars are tough on buyers, especially in a strong seller’s market, and it is important to counsel buyers to develop a thick skin. As their agent, it is incumbent upon you to help position the buyers as a total package — a great offer being made by an attractive buyer.
Preparing them ahead of time
Make sure they understand that they are in a competitive seller’s market. Although they may be compelled to make an initial offer at a discount — this offer will likely be immediately disregarded if the desired property is in a good location and priced right. Ask your buyers to adapt a competitive mentality and prepare them for the very real possibility that they may be going up against multiple interested parties. The best tactic is to make their initial offer as strong as possible.
Make the offer as frictionless as possible
In this market, it is crucial for buyers to be financially prepared to pitch their offer. Present the mortgage pre-approval or proof of funds alongside the offer. You can also bolster the buyer’s position by contacting the selling agent and asking if there are other factors, such as a specific closing date, that the seller is hoping for. If your buyers can accommodate the seller’s needs, that can add to the attractiveness of their offer when all other things are equal. Lastly, if a seller's disclosure and other addendum are available for the buyer to review, they should do so, then sign the documents to acknowledge acceptance and include them with the offer.
A word of caution. Although it might seem like a good idea for a buyer to say they will forego the home inspection, this is highly discouraged. Even if the home is being offered “as-is,” it is the buyer’s right to have an accredited inspector look through and discover any potentially serious flaws in the home. This gives buyers the opportunity to bow out of a contract when severe structural or health problems are present in the home that may not have been previously noticed.
Counsel your buyers to move their financial deposits up as high as they possibly can. An offer with a 20% deposit is seen as much stronger than one with a 5% deposit. They won’t lose out if the deal falls apart — all deposits are held in protected accounts — but they will be seen as more serious to the seller. As the saying goes, “money talks.”
It is popular at the moment for an agent to suggest to their buyer that they write a letter to the seller. A carefully written letter that introduces the buyers and tells about their background and goals can create a connection with the seller. This should be a simple, complimentary note to show why the buyer loves the home and their willingness to work with the seller in good faith.
Write a strong contract
A contract needs to be able stand on its own without any verbal support. You make a contract strong by completing every field and making that information as clear as possible. If your buyer has a contingency of any kind, it needs to be very clear. If it is delivering deposits, it needs to be very clear. If there are items to be included and excluded in the sale, they need to be noted.
If you are representing both the seller AND the buyer
Occasionally, the selling agent is also working with a buyer who chooses to make an offer on a property he/she has listed. Referred to as dual agency, this type of situation requires special care and in the case of a bidding war, may require the assistance of a manager to prevent conflict of interest.
Here at The Gallery, when an agent receives multiple offers on a listing, including one or more from buyer clients he/she also represents, either Jeff or I will step into the role of listing agent, review all of the bids objectively, and confer with the sellers to help them decide which offer provides the strongest terms. Sellers can rest assured that they are receiving the expert guidance they deserve, and our agents are relieved of any possible conflict of interest since all offers are treated equally. This is a practice we are proud of, one that strengthens our reputation and integrity with all parties involved: agents, sellers, and buyers.
Finally, keep the big picture in mind
It is very easy to get swept up in the mechanics and passion of the transaction. Whether you are representing the buyer or seller, these can be heady times. So it is important to remember that ultimately, we are in the relationship business and in the long run, how we transact with our clients and fellow agents can have long-reaching effects on our careers.
When a winning bid is chosen over ten offers, it means there are nine buyers, people, who have lost out on a dream. And there are nine losing agents who worked so hard to help them. If you are the selling agent, it is best to deliver the bad news with a phone call, as soon as the decision is made, and ask the top two or three bids if they wish to stay on as a backup offer. It is important to have empathy for everyone in the transaction, to be fair, and to keep the lines of communication open — your fellow agents will remember that you treated everyone with respect, and will likely do the same for you the next time you have the opportunity to work together.
Good luck out there.