Buying Homes in a Bidding War – Understanding Competitive Markets

April 29th, 2012 by Scott Schang

This article was originally written on July 8th, 2009.  With multiple offers being made on the limited homes available for sale in this real estate market, I think its time to dust this article off.

I talk to home buyers every day  that are in the trenches fighting this war.  You will see very little in the mainstream news about the environment you will encounter when trying to make offers to purchase a home in this real estate market.  Lets spend some time on battle field assessment so that you can be better prepared for the battle at hand.

Lets look at the Bidding War  strategy now being used by most foreclosure sellers.  The word Strategy is used purposely because it is part of the sellers marketing plan to attract as many offers as possible.

This is a two-fold win for the seller of the home.  The first win is obviously that the more offers the seller recieves, the better the chances at expiditing the process and selling the home.

The second win is that the bidding war environment drives the sales price higher as potential buyers are eager to make an offer that will be accepted.

The listing price is NOT the sales price .  When you walk into your favorite retail store you pay the price thats on the tag.  If its on sale, the reduced price is the purchase price.  This is how consumers are trained in America and bartering is not part of our culture.  This is also one of biggest sources of frustration for home buyers in todays market.

Take a look at these articles by Jeff Collins from the Orange County Register recently.

July 6th,  2009  Foreclosed house draws 135 offers That was in the first 3 days on the market and the home sold for more than $100,000 more than the listed price.

June 18th,  2009  Humble Anaheim home draws 63 offers .Although the home recieved offers $100,000 above listed price, the sellers accepted an offer of all cash for $21,000 above asking.

Preparation is key  to maximizing the effectiveness of your offers in this competitive environment.  Understanding the local market is vital to setting up your expectations for the competition on any given property.

Your Real Estate Agent has the ability to provide you with market data that can give you some insight as to how the competition is in your local market.  The insight you can draw from this market data will help you to prepare for adventure ahead.

Several Market Data Key indicators for identifying competition  are:

Sales by Price Range:  If the majority of homes sold are in the price range that you are looking expect a lot of competition!

• Days on Market:  Days on market will tell you a lot about the market, and about a particular home youre looking at.  If the home has been on the market for a long time, there may be challenges with either the area, the ability to lend, or the pricing.  If the Days on Market is very low for your price range and your area this means that homes are moving very quickly.  They are being sold as fast as they are going on the market.  This means more competition.

• Median Sales Price:  If the median sales price is smack dab in the middle of what you want to spend.Expect long lines and many offers for the most desirable homes in your community.

• Listing price relative to comparables:  Your agent can pull a report of recent sales in the neighborhood of the home you are trying to make an offer on.  If the sales prices are significantly higher than the listing price, you have identified the marketing strategy of the seller and you should expect a lot of competition.

5 weapons that will help  you make competitive offers in this market:Get APPROVED for financing  and knowing your range.  Do not start looking at homes without a full approval and maximum price range that you qualify for from a lender.  Your lender should be able to provide you with a copy of your Fannie Mae Underwriting Approval as proof.  You cannot get an approval without providing the lender with your income, W2s or tax returns, current pay stubs, assets and having your credit pulled and underwritten.  A lender that is willing to provide you with a Pre-Qualification letter after a verbal conversation is not giving you a loan Approval.

Cash is King  but it doesnt mean that you will not get your offer accepted if you have a low or no down payment.  The only thing the seller is concerned about is that the home will sell in a timely manner.  Many times, this means accepting an all cash offer for less than other offers.  Knowing that THIS is your biggest source of competition will help you prepare a smarter strategy.

Make sure your Team is experienced .  I get into a lot of trouble sometimes by pointing out that just because someone works for a lender that does not mean that they are professional or experienced.  Just because your Real Estate Agent has a license, that does not mean that they are professional or experienced.  Your Loan Officer and Real Estate Agent are your strongest allies in the home buying battle.choose wisely.

A Strong Loan Approval Package .  I have seen quite a few offers get accepted simply because the Real Estate Agent and the Loan Officer took the time to tell your story to the seller.  An loan approval package that describes and explains the financing you are receiving and focuses on the strength of your financial offering (remember, the bank just wants to know that the home will sell) is vital in getting your offer looked at.

The Presentation of your offer  by your Real Estate Agent can be the difference between having your offer considered or tossed to the side.  If your Agent and Lender have taken the time to document the strength of your offer this SIGNIFICANTLY increases your visibility amongst the stack of offers the seller is likely to receive on a desirable property.  It is not uncommon to regularly see offers that are sloppily hand written and tossed onto the pile to later be discarded because it appears there was no effort put into the preparation or presentation.

If Ive inspired you to do more research to educate yourself, intrigued you to ask more questions or encouraged you to do your homework and make sure youre putting yourself in the best possible position to succeed..then ive done my job.