How To Start A Bidding War For Your Home
Spring has sprung and bidding wars for homes will be breaking out across the real estate landscape. As a seller, you want the highest possible price for your home. You could just hope that a bidding war breaks out or you can take a few steps to encourage it to happen.
Unless you have a very special house that a lot of people happen to want, you need to first be in a seller’s market before you can anticipate a bidding war. A bidding war is simply a situation that generates offers from multiple people interested in buying your house. As offers come in, each new bidder makes a more attractive offer than the previous one. Generally, your goal is accepting an offer well above your original asking price.
While bidding wars generally need a hot seller’s market to get started. There are certain characteristics of the property that help fuel the fire. At the top of the list is the quality of the property, the desirability of its location, and the strength of its school district that can also increase the chances of a bidding war.
You might not need to take all of these steps but each one progressively increases the chances that you’ll receive multiple offers to choose from.
Step 1 – Hire a real estate agent. Bidding wars are not likely to happen if you’re trying to sell the house yourself. The power of a good marketing plan and a strong MLS listing is at the core of getting a bidding war started. Study after study shows that for-sale-by-owner almost universally results in a lower sales price.
Step 2 – Plan ahead. Don’t call an agent to list the house on Monday with an expectation that a bidding war will start on Friday. Both you and the agent need time to prepare to sell the house. At a minimum, the agent needs to prepare a market analysis that includes evaluating high-quality comparable homes. The agent also needs to develop and organize a strategic marketing plan. You will need to prepare the house for sale. This can include some minor repairs but at a minimum staging the house to make it as attractive as possible to buyers. Expect it to take several weeks before your house is ready to be listed on the MLS. Try not to get yourself in a position where you have to sell the house within 30 days of listing it with an agent. A tight timeline can cause you to accept the first offer without allowing a bidding war to develop.
Step 3 – Set the stage. To attract top offers, your house needs to look its best. Your preference in interior design probably doesn’t match what has been proven to draw interest from the most buyers. Listen to your agent and consider hiring a professional staging company familiar with your local market. There are proven techniques to accentuate a property’s best features and downplay its imperfections.
Step 4 – Surprise, price your house below market value. The point here is to bring in as many eyes to look at your home as fast as possible. In a seller’s market, pricing the house 5% below market value will create a stampede of interested buyers.
Step 5 – Build interest before showing it. The house is newly listed on the MLS but you’re not going to allow it to be shown for about a week. Your agent uses high-quality photos and videos showing that it’s an incredible value for the asking price. Besides the MLS, give it several days to be picked up and shown on other listing websites such as Zillow, Trulia, and RealtyTrac. In a seller’s market, this drives anticipation and suspense to bring a flood of viewers when you do open it for viewing. Give it five full days between being listing it and when the first showings can be scheduled. The best time to open it for showing is a weekend when most buyers are out looking.
Step 6 – Create urgency with an open house. You want all buyers to see the overlapping interest in your house. Consider limiting the time of the open house. A long drawn out open house that runs from 10 am to 4 pm will have people trickling through without drawing a crowd that shows a high level of interest. Instead, shorten the time to 1 pm to 3 pm to bring in as many people at one time as possible. Schedule the open house for a week or two after listing it. Even people that have already viewed it are likely to come back for another look. You want people to view the house and make offers but you shouldn’t expect to start making counter offers or accepting an offer during the open house. You want every interested buyer to make an offer. Instead of writing counter offers, you’ll be collecting multiple offers through a full-fledged bidding war.
Step 7 – Set a deadline for any and all offers. You want to motivate procrastinators as well as early birds. You’re in control and still don’t have to accept offers that are below your expectations but you’ll learn what the market thinks about your home. A deadline is an effective way to generate multiple offers. But it only works if there have been multiple showings and a successful open house. If everything has gone well, you notify all prospective buyers that you have multiple offers and prefer that all interested buyers submit their highest and best offers by a certain date and time.
If the fair market value (what you expect it to appraise for) is $325,000, a high bid of $375,000 might not be your best offer. It could be the best offer if the offer is for all cash and the buyer has demonstrated they have the cash. Or if the buyer has the cash to make up the difference between the appraised value and the sales price. Otherwise, an extraordinarily high price is not likely to be approved for a mortgage above the appraised value.
Several other things go into your analysis of the offers. Any contingencies attached to the offer are important. The pre-qualified mortgage amount for the buyer is also important. So is the possibility that some offers have an escalation clause to increase their offer over and above the highest bidder.
A successful bidding war leaves you in the desirable position of evaluating the best of the best offers to determine what works in your favor the most. There may even still be room in one of the lower offers for you to ask for something you want that none of the offers contain.
What are your thoughts about managing a bidding war? Please leave your comment.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to askbrian@realtybiznews.Com.