The COVID crisis left home buyers with no choice but to play it by ear as demands decreased and prices went up. However, the real estate landscape in the Vancouver area changed after it gained traction from the early months of the global pandemic.
This time, buyers are looking into buying homes in the suburbs making bidding wars a regular occurrence.
A bidding war occurs when two or more potential buyers of a real estate property compete against each other for ownership by incrementally making bids.
How a bidding war works
In a bidding war scenario, it is always about competing for ownership. As the bidding progresses, the price bids also increase, and the buyer who has the ability to push the final price up past its original value wins.
In a competitive market, you need to put a strategy in place to come out on top. More often than not, a buyer who chooses a strategy that is aligned with the needs of the seller can increase the odds of winning.
Examples of a bidding war
So for instance, Buyers A and B are looking into buying a house listed at $300,000. Buyer A offers the list price while B increases the offer to $310,000. Since A is determined to purchase the house, she increases the offer to $320,000, which B counters with a $330,000 offer.
Buyer A realized that her bidding cap is $400,000 so she raised her bid $20,000 more. This time, Buyer B concedes and the seller awarded the house $50,000 to Buyer A more than its original list price.
Key tips for buyers to win a bidding war
1. Offer some cold hard cash
In a bid to emerge victorious, buyers need to understand that cash is king. With that said, if there are multiple offers on a house, a cash offer gives you a competitive advantage.
Not only does it defeat other bidding war strategies, but it also turns the seller's attention to you. You can also increase the chance for the seller to skip any hurdles that lengthen the buying process.
When you offer all cash, you give a message to the seller that you can buy the house at any given time. Sellers don't like lending agreements associated with mortgages so any spark of hope that will enable them to be spared from the problem between a lender and a buyer is a whiff of fresh air for them.
Showing your financial capacity to the seller also gives them peace of mind as you are eliminating any third-party denials, roadblocks, and questions. Of course, you have to keep in mind that if you make an all-cash offer, you also have to have the cash on hand.
Unfortunately, a vast majority of buyers don't and they end up seeking another alternative strategy, which at most times can be risky for the seller.
2. Make the highest bid
The easiest and most effective way of winning a bidding war is to offer the highest price for an obvious reason that this strategy outbids the competition. If you still have a few extra cash for dominating the bidding war, you are most likely to become the seller's top choice.
Most homeowners also aim to make as much money as possible and sellers are also working towards the same goal. In a bidding war, there can be an unexpected turn of events, especially when a buyer is willing to go the extra mile to purchase a home they love.
While it is very unlikely to bid ten times higher than the asking price, you might just resort to this strategy if need be.
3. Use the escalation clause
When used correctly, an escalation clause can be a great tool for securing a home. However, not all buyers are equipped with knowledge in using them and they end up doing more harm than good to their strategy.
An escalation clause involves a buyer agreeing to outbid other counter offers by a specific amount of money taking the cap price into consideration. It's like telling the seller that you want their house badly and you are willing to do whatever it takes to outbid other buyers and you have the ability to make it happen.
If this technique is employed properly, many buyers can trump even the highest bidder. The rule of thumb is to increase your cap price.
So if you're bidding on a property listed at $400,000, you should put an escalation clause with a cap price of $500,000.
4. Write a letter to the seller
Surprising as it may seem, but this strategy can put you ahead of the game. A personal letter that expresses your interest in buying a home can tug on the heartstrings of most sellers.
The letter should include the things you and the seller have in common such as family life or hobbies. You will also need to explain how the house will be an ideal retirement home or a perfect haven for your children.
Be as thorough as possible so the seller can feel your sincerity. Be honest and put your heart and soul when writing the letter. It may help to consult your Realtor who knows the ins and outs of the process.
You can work side-by-side to ensure that you are going to secure the home at the end of the day.
Conclusion
While it can be challenging to choose a bidding war strategy that works for you, talking to an expert can simplify the process. A realtor will help you to determine the path that you should establish taking local customs into account.
When you formulate a plan with a real estate agent, not only will you land the house you have been eyeing on, but you will also get a more attractive offer.