Some sellers will review offers before offer day, others will not. If you are dealing with the latter scenario, exercise caution.
Mistake #1: Bidding Too Low
It goes without saying that if you don't offer enough, you won't get the house. Most sellers have an ideal price in mind when they sell their home. If you don't meet or exceed that number, you'll be out of the race.
What some buyers don't realize is that this ideal sale number is often pretty close to market value. The home sellers will have reviewed pricing research provided by their REALTOR® for similar homes that have sold in the neighbourhood. As a result, sellers usually understand what their home is worth and have the data to back it up. Confidence level = high.
An offer price that falls below this number is the single most common reason buyers lose in competition.
To help prepare you, your REALTOR® will provide the sold prices of comparable homes in the same neighbourhood as the house you plan to buy. These sold prices will reveal a lot about market value, and will become critical information in helping you decide what your offer price should be.
Buyers will sometimes try to save a few dollars. Some are convinced that they could buy the house for less than their realtor suggested. Others simply push against the concept of paying higher than list price.
However, key to your success in a bidding war is this: best offer first. Bring your very best bid right out of the gate, because chances are good that you will not have an opportunity to improve it. Sellers will often select the most attractive firm offer, overall.
Making your first offer the very best you can will improve your chances of getting the house.
Mistake #2: Making the Minimum Deposit
You can get everything else right, but if your deposit amount is not persuasive to the seller, you could still lose the house.
A deposit is meant to indicate a buyer's level of seriousness about a property. To a seller, a large deposit tells the story of a fully committed buyer. As long as both parties live up to the terms of the agreement, the deposit is not refundable to the buyer. Thus, a good deal of reassurance is afforded the seller that they will indeed make it all the way to closing day.
How much is the right amount for a deposit? It depends.
It can vary by location and overall pace of the market, but a good rule of thumb is that the deposit should be no less than 5% of the proposed sale price. In the current seller's market, bringing this number closer to 10% will help communicate that you are very committed to buying that house.
Sometimes the expected deposit amount will appear directly on a property listing. Regardless, if you're not sure how much to offer for the deposit, check with your REALTOR®. They can guide you on what may be expected, and they may even have additional insight about the seller's expectations based on conversations with the listing agent.
Mistake #3: Including Conditions In The Offer
To a seller, a condition is little more than a roadblock. Conditions stand in the way of a deal being well and truly done, and as a result sellers generally don't appreciate them.
In a more balanced market, sellers expect to see conditions in an offer. Most frequently, financing and home inspection conditions. These conditions typically protect a buyer, ensuring that both the mortgage funds and the structure and mechanics of the house have been verified before the offer is considered firm.
In the current market, with nearly all freestanding homes being sold in bidding wars, conditions are less commonly seen during offer preparation and submission. Buyers understand that they are taking a risk by not including conditions to allow for proper due diligence, however they also realize that including a condition is a quick way of getting ruled out in multiple offers.
REALTORS® will recommend that you include conditions to protect yourself, sellers market or not. At the same time, you will need weigh the risks of including conditions against your chances of success in a bidding war. In the end, it's a highly personal decision and everyone's tolerance for risk is different.
If you are more comfortable including conditions in your offer but know you are facing competition for the home, consider improving your chances by reducing the time window required to complete your due diligence.
Speak with your REALTOR® about the pros and cons of including conditions before making your offer.
Mistake #4: Making The Offer Too Early
If a seller does not intend to accept pre-emptive bids (usually indicated in the listing), presenting an early offer anyway in the hopes of avoiding competition could work against you. Sending an early bid to a seller reveals your intentions about how much you’re prepared to offer on the home.
Worse, it may trigger a protocol requiring the listing agent to alert all other agents of an incoming offer, creating competition precisely when you were trying to avoid one.
While it's certainly not always a bad idea to submit a pre-emptive offer, seek guidance from your REALTOR® in advance to ensure it's likely to be given due consideration in your specific situation.
Mistake #5: Making The Offer Too Late
MLS® listings will usually indicate whether a seller has opted to hold offers on a specific date in the future.
This is important for two reasons. First, if you are viewing the home for the first time on the same day as the offers are being held, you are working to a very tight timeline.
Second, the listing document will show the specific time-of-day deadline to receive offers. This is to keep a level playing field amongst buyers, and to set expectations about when a seller will review the incoming bids.
If you view the home for the first time on offer day, consider planning your time carefully. In fairness to the other participating buyers, sellers may not consider offers that arrive after the precise deadline. This will rule you out even before you have begun.
To avoid this scenario, speak with your REALTOR® about expected offer dates in advance of any showings. This will allow you to add a day or more buffer between viewing a property and meeting an offer deadline.
Mistake #6: Not Playing Ball
It's offer day. You've submitted a strong offer with a great deposit, and all that's left to do is wait for the verdict.
But then something unexpected happens. You are sent back to improve your offer.
When two or more bids are very similar, a seller will sometimes send selected buyers back to the drawing board to break a tie, simultaneously increasing their final selling price. The seller will ask the buyers to come back to the table with an improved offer, sometimes even recommending specific changes that need to be made.
Buyers will sometimes interpret this negatively and dig in their heels. Their pride won't allow them to make changes to their offer.
However, if a seller comes back to a buyer with a verbal counteroffer or proposal, it should be interpreted as an invitation to participate, nothing more. Opting not to continue will end the negotiation for the buyer and the house will go to someone else.
Emotions can run high during a negotiation like this. If you have already gone into a bidding war with your very best, strongest offer, it may be difficult to accept what the seller is suggesting: it's just not good enough.
The truth is, being sent back is a very good sign. It means you are in a tie amongst the best offers on the table, and you now have the chance to push through to the finish line.
In the end, it will be about asking yourself how much you want to buy the house, and if you can abide the additional terms being requested.***
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