So you want to buy a house in Central Austin, and you've found a home you love. How do you make it your own in the competitive Austin real estate market?
Multiple offers (often referred to as “bidding wars”) are a regular occurrence in Austin. A bidding war occurs when multiple buyers decide to purchase a home and put in an offer at or around the same time. A bidding war can result in the potential buyers competing against each other to “win” the home.
Fortunately, there are a number of strategies you can use to increase your odds of winning the deal.
Be at peace with the fact that the seller controls the process
Multiple offers usually occur in a seller’s market, meaning home inventory is low and there are ample buyers looking to purchase homes. This puts sellers in a position of negotiating power, and they often use a bidding war to drive up the sales price of their home beyond the price it was initially listed.
There is only one rule that everyone must follow in a bidding war -- you’ll never know how much anyone else has offered. Your offer may be $1 below the highest offer or $10,000 below. Only the seller and the seller’s Realtor know the content of all the offers.
Beyond that there are no set rules on how a multiple offer situation must be handled. It is up to the seller and their Realtor to decide how to address it. We typically counsel our sellers to set a specific date to review offers, usually after the first full weekend on the market. Many other Austin Realtors do the same, but that’s not always the case.
Sellers then review all the offers with their Realtor and select whichever offer they think is the best. If two or more offers are very close potential buyers may be asked to adjust their offer – though again, this is a blind process that your Realtor needs to carefully walk you through.
Deciding which offer is the best is a subjective decision based on the seller’s specific priorities. We know from experience, however, that certain elements of the offer can make it more appealing to sellers. Most sellers are interested in maximizing their sale price and having certainty that the deal will work out. Here’s how to work those two elements to your advantage.
Don't get hung up on the asking price
Since a home is often an individual’s most valuable asset, it makes sense that sellers usually want to maximize their profit when they sell their home. As a result, the highest price usually wins the bidding war.
In Austin’s fast-moving real estate market the original asking price is almost irrelevant. The true value of the home is how much someone is willing to pay for it. Instead of focusing on the asking price, figure out the true value of the property within the scope of your personal needs and budgetary constraints. Of course, an experienced Realtor is invaluable in this part of the process.
In our experience representing sellers we noticed that offers form natural bands or price groups:
a. Offers at list price
b. Offers slightly above list price
c. Offers significantly above list price
The offers in the first two groups are often easily dismissed while the seller turns their attention to the differences in the offers that are significantly above list price. Not all multiple offer situations are the same, so this varies widely with the differences among the offer groups being more significant in some cases than in others. All that to say, your offer will likely be looked at more closely if you start out above the list price.
Don’t fall prey to the “win at all costs” mentality
Have you ever been to an auction, felt your competitive instinct kick in, and walked out having paid more for an item than you wanted? That same “win at all costs” mentality can kick in during a multiple offer situation. Try to control those urges and your emotional attachment to the property. Have a budget and stick to it.
You may only get one chance
Often there are no second chances in a bidding war. Your first offer is often your last, so make it a good one. Go in strong.
Win the bidding war by limiting the seller’s risk
In a traditional real estate contract, the offer to purchase a home usually includes a number of contingencies -- an option period, financing contingency, and so on. Each contingency presents an opportunity for the buyer to exit the deal if certain conditions are met. “Oh, sorry seller, my loan wasn’t approved.” “Oops, you have a leaky roof so I’m going to pass on your home after all.”
Contingencies present risk to the seller. By the time a transaction unravels because of a contingency, most of the other interested buyers have moved on, and the seller has to start all over again.
Sellers want certainty that the transaction will ultimately be executed according to the terms set out in the contract. You can improve your chances of winning a bidding war if your offer has few or no contingencies or special conditions.
1. Get approved for your loan. Show sellers that you are unlikely to act on that finance contingency because you are already approved for a loan. It takes a little more effort to get approved rather than just pre-approved, but it can be worth it in the end.
2. Pay cash. Paying cash for a property is an easy way to remove the finance contingency from the contract. Not everyone can do this, but if you have the resources a cash offer is often attractive to sellers.
3.Be flexible about the closing date. Some sellers are eager to close quickly while others want more time to make the transition. Your Realtor can visit with the listing agent to see if the closing date is important for the sellers, and you can adjust the proposed closing date in your offer accordingly. You may even offer a lease back at no cost to sweeten the deal.
4. Contribute more option money. Most real estate contracts include a provision for an “option period.” The option period is a span of time in which the buyer has an unrestricted right to terminate the contract for any reason so long as proper and timely notice is given to the seller. Because a seller takes a risk by including an option period in the contract, buyers often compensate the seller by paying for this right to terminate the contract.
When you buy the option to terminate the contract, the seller keeps the money regardless of whether you go through with the deal or not. The seller earns this money in exchange for taking the risk of removing the home from the market while you engage in your due diligence and assess the home. If you end up completing the purchase, the option money gets applied to the final purchase price. In a multiple offer situation you can contribute more option money to give the seller confidence that you will go through with the deal.
5. Eliminate the option period altogether. The option period is a critical time when the buyer conducts due diligence, like inspections, to make sure the home purchase makes sense. Because buyers can terminate the contract for any reason during the option period, the option period represents high risk to the seller. If you really want to eliminate the risk for the seller, you can opt to buy the home “as is” without an option period. This is a nuclear option and NOT one that we recommend.
We will guide you through a bidding war
There are lots of ways you can tweak your offer to make it more attractive to the seller.
Knowing the strategies that can help you win a bidding war will go a long way to getting you the house you want. With boots-on-the-ground experience helping both sellers and buyers through a multiple offer situation, we can guide you through the process and get you closer to living in a house you love.
Reach out today for your free consult.
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