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Winning The Bid: Buyers’ Strategies for a Competitive market


As inventory shrinks and more buyers continue to enter the market, hoping to capitalize on low interest rates and secure a home before prices begin climbing, real estate professionals are seeing a marked turn in the dynamics of sales transactions.

“At the end of 2012, we saw the lowest inventory levels in recorded history, and although single family active listings have come up slightly in the first quarter of this year, there is still an amazing lack of inventory for sale,” says Scott Higashi, EVP of Sales at Prudential Locations.

“The number of homes coming onto the market isn’t keeping pace with the demand of buyers. As a result, we’re seeing increased competition for properties, with multiple offers and bids and sales over the listing price. For buyers today, it is a very different environment than it was a year ago.”

If you are a buyer today, Higashi says, there are strategies that can help you ensure that you are a top contender in a multiple bid situation.

BEGIN WITH A “MARKET VALUE” MINDSET. Market value is, by definition, the price agreed to by a buyer and seller. The price a property ultimately sells for is the price the market will bear. In a rising market, multiple offers and bids-over-asking push prices – and market value – up.

If you are looking to buy, it is important to stay up-to-the-minute on market trends and recent sales in the neighborhood or building in which you would like to buy so that you know what will be competitive when you go to make an offer. A real estate professional with expertise in the neighborhood or building can help you with this.

GET PREAPPROVED. In a competitive market, the strongest bids are backed up with an official letter from a reputable, local lender that confirms that you, as a buyer, have been prequalified and preapproved for the loan necessary to make good on your offer. “Today’s sellers won’t consider an offer unless you are preapproved,” says Higashi.

CALCULATE YOUR ESTIMATED TAX SAVINGS. Before you set the ceiling on the price you’re willing to pay, make sure you know how much the mortgage tax deduction will be for the loan amount that you are seeking. This is money in your pocket at the end of each tax year, and it may increase how much you can afford to pay for a mortgage. Consult your tax adviser if you have questions about this calculation.

SHOP IN A PRICE RANGE THAT ALLOWS YOU TO BID UP. In a rising market, it is helpful to shop 5 percent to 10 percent below your preapproval amount, so that you have room to counter-offer in a multiple-bid situation. Reserving that extra margin in your loan prequalification means that you can counter quickly and confidently, if you need to.

BE PREPARED FOR A LOW APPRAISAL. Low appraisals are common in a rising market. A low appraisal does not mean that you are paying too much. Appraisals are based in large part on recent sales of comparable properties. As prices trend upward, the most recent sales may be at or below what current buyers are willing to pay, and thus, what the market commands.

In the event that a property does not appraise at your purchase price, you may need to cover the additional cost as part of your own payment. Having a cash reserve or other backup resources in case of this event can be the difference between winning the sale and losing it.

WORK WITH AN AGENT EXPERIENCED IN MULTIPLE BIDS. An agent experienced with multiple offer situations can prepare a competitive offer that will win the attention and confidence of the seller and reassure the listing agent that you are a strong buyer with a deal that will be easy to close.

“Making an offer using yesterday’s tactics and mind-set will not work with today’s sellers,” explains Higashi. He says that is why Prudential Locations has developed a specific training program for their agents on how to handle competitive markets and multiple-bid situations.

“We leverage the firm’s 42-year experience and knowledge from previous competitive cycles to coach our agents in the specific tactics that best prepare and position their clients to win their bids,” says Higashi.

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