Buyers in our area have heard stories of houses selling with upwards of ten offers for tens-of-thousands (or even hundreds-of-thousands) over the list price. Many buyers have even been involved in some of these so-called bidding wars. And we expect to see bidding wars continue through this spring market.
Caroline Staudt explains what buyers need to
understand about bidding wars:
Every situation is unique.
No two buyers and no two listings are the same. Engaging a thoughtful, knowledgeable buyer's agent to represent you, and only you, in your home search an important first step. Much like the listing agent, whose fiduciary duties are to the seller, a buyer's agent owes her fiduciary duties to you, the buyer. This enhances the agent's ability to guide and advise you and your family on forumulating the best offer on any given home.
A seller is not obligated to, and may not always, accept the highest offer.
Other terms and factors such as financing (e.g., a cash offer being more attractive than a 5% down offer), closing date, inspections, and even pure emotion of the seller can also factor into a seller's decision. Again, a buyer's agent can work with you to consider each of these terms when making an offer.
Price does still matter.
Sellers may not always take the highest offer, but price does matter - a lot. When considering making a bid well over the asking price, think about what the house is worth objectively by looking with your agent at comparable sales and also what the house is worth to you. Then balance those two factors. Also, depending on your financing, speak with your agent about whether there could be appraisal issues with an offer significantly over the asking price.
There is no protocol for how a seller should handle multiple offers.
A seller reviewing multiple offers may choose to (1) accept the highest offer that comes in, (2) go back to some or all of the potential buyers for a "Best and Final" offer, (3) counter to one of the buyers but not the others, or (4) reject all offers. Provided that Fair Housing and other applicable laws are not violated, there are no rules for how a seller can handle and respond to offers. It is the job of your buyers's agent to arm you with as much information as possible so together, you can prepare an offer that stands out from the crowd, no matter which approach the seller takes.
Use caution when waiving contingencies.
Buyers may hear stories about other buyers waiving mortgage contingencies and inspection contingencies. This approach is not for the faint of heart and has the potential to lead to big problems down the road. While waiving contingencies may be what it takes to ultimately get a specific home, you should be sure to speak to your agent, your lender, and perhaps even your attorney if you are considering going down this path. Your agent should also be able to work with you to formulate a strong offer while limiting your risk.
Remember that not every listing will see a bidding war.
Remember, every situation is unique. Many houses - whether because of price or location or some other intangible factor - will not sell immediately with multiple offers. Do not assume when looking at listings that every house will sell for over the asking price with multiple offers. Do not be afraid to enter into the market for fear of being involved in a bidding war.
Bidding wars are a challenge for buyers. By definition, some buyers will miss out on homes that they want to buy - perhaps even dream homes. There are ways, however, that a buyer's agent can help you through the process to increase the chances of winning the bidding war. If you have any questions about multiple offers, if you are thinking about buying or selling, or if you want to speak with an agent about current market conditions, please give us a call.