With the start of the new year here in 2015, there is a good chance that buyers will run into a competitive bidding situation ( i.d. “bidding war”) for the same property. We have had 2 in the last month: One at the tail end of 2014 and one this first week of January, 2015.
Common sense suggests that the strategy for winning a “bidding war” stars once a buyer is alerted to the fact that there is a competitor to the initial offer. The full truth is that the strategy should have started with the initial offer.
As the saying goes, you never get a second chance to make a first impression.
So, the first thing to do, as a buyer ( with the assistance of your Praedium EBA), is to research the actual “range of reasonableness” of value for the home; seeing if the listing price has any basis in reality. This can be done by looking at recent sold data ( as well as listing data ) for comparable homes in the area.
If the list price is not too high, it is BEST to make an offer that fits within the “range of reasonableness”. Often, without care as to what the listing price is relative to its actual value, buyers will make an initial offer based on some pre-determined percentage “off” the list price.
So, if a house is listed for $200,000, an initial offer might be based on a predetermined 15% off the list. Hence, that offer would be $170,000. Yet, the data strongly suggests that a purchase price of $185-$190,000 is very reasonable. You, as the buyer, know this. You are perfectly happy with a purchase price of $190,000+.
So, if you, as the buyer makes that $170,000 initial offer, there is some truth to the perception that the seller may be “insulted”. The seller decides to wait to counter. Then, the next day, another offer comes in.
You, as the buyer, are alerted to the “bidding war” scenario. Because you are comfortable offering $190,000+, you offer $191,000. However, ( though unbeknownst to you ) the other buyer made an initial offer of $182,500.
BOTH of your Highest and Best offers come in. Yours is $191,000. The other is $190,000. All other terms are pretty much the same.
The seller picks the $190,000 offer !!! Why ? The seller rationalizes that you only went up to $191,000 as a result of competition. Hence, the seller fears that, as the situation unfolds, you may develop cold feet and try to pull out of the transaction.
Because the other INITIAL offer was significantly higher, the seller feels more comfortable dealing with THAT buyer because that buyer was more “into” the house from the beginning.
Sellers want the closing to happen. They do pay attention to other items about an offer than just price. So, while you, the first buyer, think that you should win the bidding war because your offer was higher, that first impression you made with the “low ball”, predetermined offer, led the seller to ultimately pick the perceived more sure thing in the form of the other buyer’s offer.