Real Estate Matters
Multiple offers: Calm the bidding frenzy with cool logic and smart strategy
Multiple offers are back in play in our high-demand, low-supply residential real estate market. Before you make the leap into competitive bidding on a property you should do your homework and show up prepared.
Here are some tips on how to play the game, and not let it play you:
Decide whether you're going to play at all. Auctions are not for the ill-prepared and faint of heart, and that is what this is, an auction. Understand that bidding is an emotional, time-consuming process. Can you make that personal investment and keep your sangfroid, your ability to walk away if the bidding doesn't go your way? You may have to do a lot of work for nothing. Decide in advance whether you have the metal to play and lose.
Know where you're going to stop. Have a price in your head. Be prepared to go to that value, and then put the paddle down. No you won't be holding a real paddle when you press send, but the urge to bid simply to win will feel very real. Don't give in to it. Bid within your preset limit. Any experienced auction participant will tell you never go into an auction without having a stop price in your head. Value first, and value last.
Get a strategy. Many times, you can get the property for less than your stop price. Study the recent market and the patterns of overbids. Your competitors will be doing the same, and it will define their behavior. Create a bidding strategy that steps outside of the established pattern and you could acquire the property for less than your maximum price.
Good strategies come from understanding patterns of human behavior. Say the ask is $1.2 million. What amount did similar houses eventually sell for. Should you expect the price to be 2 percent over, or 20 percent over? The clues are usually there, if you take the time to look.
Tailor your offer to win. Contingencies and terms are the name of the game here. The less contingencies and the shorter the close date, the better you look. In other words, it's not all about money — it's about making the seller's life easier. Do your due diligence on the property before you make your offer, so you can omit a physical inspection contingency.
See it through the seller's eyes. Are they likely to agree to an offer where the discovery of a crack (even a minor one) could reverse the terms, or are they likely to accept the hassle-free offer. For the same reason, try to drop your loan contingency by getting a loan commitment from your lender in advance. Finally, do something nice: Ask the seller what they want. It could be as simple as they want to move on a Tuesday. Or they want to sell now and rent from you for two months. Would you wait two months to possess your dream house? These are the types of questions from which winning offers are built.
Be prepared for the consequences of winning.
Removing contingencies and closing quickly is a high-wire act without a safety net. If you waived your physical inspection contingency you should have a dollar amount set aside to take care of the little surprises that are coming your way after you close. If you forgo a financing contingency, make sure you understand where you stand and the additional cash requirements that could be needed if the property doesn't appraise at the purchase price. In other words, be bold but have the financial and intestinal fortitude to back up your bold moves.
Use an experienced, local real estate agent.
If you show up with an agent outside of the local area, or with no agent, you are bringing a knife to a gun fight. An experienced, local agent will help you accurately assess the degree of risk you are taking, and have the best feel for value and bidding trends. Without the right guide, you are swinging your auction paddle blindly. Then, you might pay a Picasso price for what experienced eyes can plainly see is just a Thomas Kinkade.
Michael Dreyfus founded boutique brokerage Dreyfus Properties, with offices in Palo Alto and Menlo Park, in 2000. He can be reached at email@example.com.