Ask Adam: Top 7 Ways to Win a Bidding War

This regularly-scheduled sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013 & 2014. Please submit your questions via email.

Q. My wife and I are in the North Arlington market for a single family home and have dealt with the frustrations of losing out on competitive situations. We have lost a few homes recently while bidding 3-4 percent above ask, waiving all contingencies, writing a heartfelt letter, putting down a large EMD along with 20 percent down payment, yet we were still not even the top three contenders with our offer.

Have you noticed an uptick in demand this spring market compared to the last spring market? I know it really depends on what the seller is looking for, but it is not often realistic (nor possible) for us to offer 10 percent above ask on every offer to get our home. Do you have any suggestions for a winning strategy while still exercising at least one contingency to protect us? Additionally, could you rank the contingencies from best to worst in terms of making a competitive offer? Thank you.

A. It sounds like you are competing in a market segment that is in very high demand, which can be highly frustrating. There are certain segments of the Arlington market where demand seems to continuously outpace supply, creating the type of bidding wars you are experiencing.  That said, I have not noticed an uptick in demand this spring over last.

I wrote an article last year that provides a points-based list of strategies that you can use to strengthen your offer. It’s still highly relevant, but I like your idea of putting these strategies in order. In my professional opinion, these are the top seven ways you can become more competitive.

1. Price. Assuming that you feel the current market value of this home is higher than the asking price and you expect competition — I recommend offering the full list price.
2. Escalation. 
   1. Decide what the highest price is that you feel comfortable paying for this home. Said differently, if someone is willing to pay $1 more than this price, are you OK with them getting the home?
   2. Most buyers are going to escalate in increments of $1,000. I recommend picking a more aggressive number — perhaps $5,000 or $10,000. This will help make up for any deficiencies in your offer.
3. Appraisal. If you can afford to do so, waive the appraisal contingency. Putting yourself in the seller’s shoes — it’s great to have a high contract price, but if they are running the risk of it not appraising, they could find themselves re-negotiating the price after the appraisal. Many sellers will put a lot of value in being able to avoid this situation.
4. Home Inspection. Home inspectors are paid to find problems in a home. Even for the most well maintained homes, they are going to find something. Sellers would prefer to avoid the possibility of the home inspection turning into additional expenses for themselves. If you are not comfortable waiving the right to a home inspection, you may want to consider waiving your ability to request repairs. Done properly, you can maintain the ability to cancel the contract if something is found that you are not comfortable with.
5. Closing Date. Find out when the seller would like to close and match this closing date in your contract. If they are in the process of buying another home, they may also prefer a rent back. You can win some major points by offering a free rent-back for the sellers.
6. Financial Contingency. This is the hardest contingency to exercise so sellers are not typically as worried about the financial contingency. The listing agent can usually determine by the strength of your pre-approval letter and a conversation with the lender, how big of a risk you pose of being turned down for financing at a later point. We work with some lenders that can fully approve you prior to writing a contract, which make the financial contingency unnecessary.
7. Earnest Money Deposit (EMD). Assuming you don’t default on your obligations, this a free way to strengthen your contract. The minimum EMD amount we usually see is 1 percent of the purchase price. I recommend an EMD of 3 to 5 percent in a competitive situation.

Please consult with your Realtor about how each of these strategies can affect your level of risk before moving forward. Best of luck out there!

The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.