Which Bidding War Strategies Are The Most Effective?

Real Estate News & Analysis

Which Bidding War Strategies Are The Most Effective?

Best-Bidding-War-Strategies-FINAL

Coming off a year during which the real estate market was widely described as a “frenzy,” many homebuyers felt fatigued, frustrated and slightly insecure. And they were totally justified in feeling that way. Supply of homes for sale hovered near its lowest point in four years. Meanwhile, demand soared, as buyers realized that home prices had bottomed out and that mortgage rates below 5 percent were not long for this world.

The result? Buying a home in 2013 meant going to war. In March, the height of the spring frenzy, three out of four offers Redfin agents wrote faced bidding wars, and it was not unusual for dozens of buyers to compete for a single home. Redfin agents across the country served as military strategists, advising their clients on which tactics to use, when to use them, and when to walk away from a deal that was escalating too high.

Looking at data from more than 10,000 offers Redfin agents wrote in 2013, we analyzed their strategies to determine which ones worked better than others. Turns out, when buyers used any of the five most common bidding war strategies, they were more likely to win a bidding war. To help you determine which strategies might help you squash the competition, here’s Redfin’s roundup of the most effective bidding war strategies of 2013:

Rank Strategy Strategy Improves
an Offer’s
Likelihood of
Success by…
#1 All-Cash Offer 28%
#2 Pre-Inspection 21%
#3 Waived Financing Contingency 15%
#4 Waived Inspection Contingency 15%
#5 Personal Cover Letter 9%

It’s Hard to Beat Cash
All-cash offers were 28 percent more likely than financed offers to win a bidding war. In Miami, paying cash for a home improved buyers’ chances of success by 127 percent. Last summer, Redfin agent Bohdan Mastykaz’s client purchased this $395,000 2-bed, 2.5-bath Miami condo. The sellers chose his all-cash offer, which was $100,000 below the list price, over a higher bid.

It Pays to Pre-Inspect
Having the home professionally inspected before submitting an offer is a highly regional practice, typically only used in San Francisco, Seattle, and less commonly in Washington, D.C. and Baltimore. Still, Redfin offers with pre-inspections were successful 21 percent more often than other offers. San Francisco homebuyers whose offers included a pre-inspection were more than twice as likely to win a bidding war than those without it. “A pre-inspection helps everyone, but especially the seller, feel better about your offer and commitment to the home,” said Mark Colwell, Redfin agent in San Francisco. “It tells the seller that you already know what’s wrong with the home, you still want to buy it, and you’re not going to ask them to pay for repairs later.”

Contingency, Shmontingency
In 2013, offers with a waived financing or inspection contingency were 15 percent more likely than contingent offers to win a bidding war. Standard in most offer contracts, these contingencies protect you from losing your earnest money in the event that you back out of the deal because your lender can’t approve your loan in time or if you decide you no longer want the home after the inspection. Waiving the financing contingency guarantees to the seller that you’ll come through with the money if your lender doesn’t. Like the pre-inspection strategy, a waived inspection contingency makes your offer more attractive by letting the seller know you’re not going to back out or try to negotiate for home repairs. However, waiving contingencies presents more risk than many buyers care to take on, so it’s important to talk with your agent about whether this strategy makes sense for you.

Pour Your Heart Out
Tugging at the seller’s heart strings by sending them a personalized letter explaining how much you love their home and how well you’ll care for it actually helps seal the deal. Compared to offers that did not include a cover letter, offers with personal notes were 9 percent more likely to win a bidding war. “Love letters work because they get the seller to relate to you on a personal level, so they see you as more than just a dollar amount,” said John Underwood, Redfin agent in Los Angeles. “My clients beat a higher offer on this $410,000 3-bed, 2-bath home in Reseda, CA by expressing their appreciation for the sellers’ landscaping work and describing their plans to plant a sunflower garden for their son to enjoy. They also used the letter as an opportunity to let the sellers know that they were flexible about the closing date, which we previously found out was among the sellers’ top concerns.”

Which Strategy Should You Use?
Cash, if you have it! But if you don’t, and even if you do, you should go into a bidding war with a clear idea of how much the home is worth to you, and how far you’re willing to go to win it. Don’t do anything you’ll later regret, which for many buyers includes waiving your right to negotiate the price or back out after the inspection. Your Redfin agent will help you determine which strategies are best for you for a given home, and they’ll also help you decide when to throw in the towel and move on to the next home.

Check out Redfin’s guide to winning a bidding war for more information. And if it doesn’t work out the first time, check out our guide to recovering after losing a bidding war.

Methodology
The bidding war strategy ranking was determined by comparing the percentage of offers that used a given strategy successfully (won the bidding war and closed) with the percentage of offers that did not use the strategy and still won the bidding war. While all five strategies improved buyers’ chances of success, some did so to a greater extent than others, and some tactics packed a bigger punch in one city than another.

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