How to Win in a Bidding War

Speaker 1: [0:09] Hello, hello, and welcome to another edition of the Awesome in Seattle podcast. This is your host, Christian Awesome, of the Awesome and Nossum Group at Wilson Realty, and I am here with all of my wonderful co-hosts and the rest of the Awesome Nossum Group team. I have the one and only, the masked wonder, Mr. Les Cutting.

Speaker 2: [0:29] Hello, hello, hello. If I sound a little muffled, I'm at a pre-inspection right now for a client, which is actually fitting for this topic that we're about to do today.

Speaker 1: [0:38] Yes. Yes, it is. Les is making it work no matter what. Uh, we also have the wonderful Jason Saldarriaga.

Speaker 3: [0:46] That's me, guys. That's me.

Speaker 1: [0:51] And we have a new addition to the team. We have Reid Watson.

Speaker 4: [0:55] That's me. Reid with two E's.

Speaker 1: [0:57] Yes. I thought it was three. Not R-E-I-D. And it's not read as in R-E-A-D, 'cause, you know, that, that'd be weird. That's,

Speaker 4: [1:06] that would be

Speaker 1: [1:07] weird. That would be weird. Today's episode is all about bidding wars and how to win. If you're living under a rock and you're a buyer, you didn't know that the market right now in Seattle is absolutely insane. Since the second week in January, it has just become crazy out there. Numerous offers on pretty much every single house, anywhere from, I think the lowest end we've seen recently was two or three offers, but the highest end was 34 offers on a house, and it's pretty crazy. So our goal today is to teach you how to win a bidding war, and we have experience, and the, the advice that we're going to give you, it works really well, and I can say that because, you know, a couple years ago, I think it was Was it 2017, Jason, when the market was super crazy like it is right now?

Speaker 5: [1:54] Yep. The height of the market was May 2018. Yeah.

Speaker 1: [1:57] Yeah, that's good. So that 2017, 2018, um, when the market was absolutely insane, we were averaging getting our clients' offer accepted after less than one and a half offers per client. What that means is, you know, most people are making four, five, seven, 10, 15 offers on a house before they get one accepted. Our average was less than one and a half offers. And that just goes to show that our system, our strategy really works. And that's what we're gonna share with you today. So let's get started. Les, let's go over getting pre-underwritten.

Speaker 2: [2:32] Pre-underwritten. Well, that is a step past getting pre-approved. So pre-underwritten, um, is taking it a step further and you… the underwriter already looks at your file and then pretty much approves it and says, "Hey, you're good to go." So why is this important? It's important because it allows you to waive your financing. Um, you get to close faster because they don't have to, you know, go through the documents again. And also puts you on par with cash. Now, obviously it's not cash. You're still getting a loan. But, I mean, it allows you to close a little, a couple days after a cash offer would close. So you look as good as cash. In, in most sellers' minds, a couple days wait isn't that, that big of a deal. So pre-underwritten is very important because it puts you on par with cash, and you can compete with cash offers.

Speaker 1: [3:18] Yep. I would agree with that. It's a very important part. Most lenders, though, unfortunately won't underwrite you upfront, so you do need to find a lender, preferably local, that will put in that extra work to, to underwrite you prior to actually making an offer. All right, let's talk about something that Les is actually doing right now, Reid. I am. Let's talk about pre-inspections.

Speaker 4: [3:43] Yeah. So a pre-inspection is another good way to present a more competitive offer. It can shorten up that closing time just a little bit, and they're pretty common right now with Seattle homes, given how hot the market is, and also that we're still in the midst of this pandemic. If you wanna do a pre-inspection, it's a great idea to check in with your agent, make sure they have a good and an available inspector who can come by right away. And that's important because timing really matters for pre-inspections. So if you find a home a day before the offer review date, it can be hard to get that pre-inspection done before the offer review. So you wanna stay on top of your time and s- tour homes right away if you're interested in them.

Speaker 1: [4:30] Yep, exactly. Now, another thing that you need to make sure you have is an agent that understands that part of our job is to be somewhat of a detective. And what I mean by that is we need to be able to look past the basics and really dive deep into a listing, and a seller, and the other agent's, I guess, situation, and really understand what it is they're looking for. And we can get some ideas on this by a few different ways. One of those is something called showing time. So now, during this pandemic, thankfully, everyone that wants to schedule an appointment to see a house has to do thr- do so through an app called ShowingTime. And it doesn't show you who's showing the house at specific times, but it does show you when the available appointment times are, that are remaining. So if there's a house that just came on the market, you know, yesterday, and they're looking at offers in five days, and you go to schedule an appointment, and you see that over the next three days there are zero scheduled or zero appointments available, that means that every half hour is booked from the time the house is open till the time the house is closed for showings.

I believe it's 8: [5:50] 00 AM to 9:00 PM. And if every single appointment slot is taken, that's a pretty good sign that the house is going to be extremely competitive. So another thing that you have to do as an agent, and make sure your agent is doing this, is really trying to build that relationship with the listing agent. Now, this isn't always, uh, possible, because sometimes that other agent doesn't always want to answer your questions or even answer their phone, but that's where it's on us to really bug them enough so that they will talk to us. But when you do ask them questions, you gotta ask the right questions and really figure out what the seller wants. Now- Most listing agents, when you ask them, "What's the seller looking for?" They're gonna say highest and best, or zero contingencies, fastest close, highest price. That's basically where they leave it off. And a good agent, like what we do, is we ask again, and again, and again, and the more times you ask or the different way that you ask or when you throw out some hypotheticals, "What, what, what about this? Would the seller like this or that or this?" That's when you actually start to find some good information out, and that's where you find those nuggets that maybe the seller or maybe the listing agent isn't necessarily telling anyone else, and that's because we asked enough times to figure out what it was they're looking for. And there's things that don't necessarily even cost you more money as a buyer, but they make the seller's life easier. So maybe you buy their furniture that they don't want to take with them. Maybe you give them a rent back after closing where you allow them to stay in the house for up to two months, uh, for either free or a certain dollar amount that you negotiate with them. I mean, there's a whole bunch of different ways that we can go about this to make our offer the most appealing as possible, and it's, it's really a very important part of getting your offer accepted. So in addition to all these little things like, you know, a, a potential rent back to the seller or buying their furniture or whatever the, the little things, the little nuggets that we find, at the end of the day it really comes down to the money. So let's go over that a little bit.

Speaker 5: [7:55] Yeah. Obviously, you know, price is king often, but not always. So the… You know, it's important to acknowledge that. Fortunately, in Seattle or in Washington, we, we do something called escalations. So, you know, you see a house listed for list price, let's say it's $700,000, and you're willing to pay up to $800,000 for it, but you don't necessarily wanna just submit an offer and say, "Hey, I'll buy the house for $800,000." So we have something called an escalation clause that allows us to kind of have a built-in bidding war in these offers, and what this basically stipulates is you generally come in and you say, "All right. Here's my offer. It starts at list price, at $700,000. I will beat any offer that comes in by $5,000, up to a maximum of $800,000. So under no circumstance will I pay more than $800,000, but if an offer comes in at- 750,000, I'll beat it by 5,000, so my offer is now 755,000. I know I'm throwing a lot of numbers out there, and if you're driving a car or something, you're like, "What is he saying?" But it, uh, it's an em- a built-in bidding. Um, there are some disadvantages to this. I mean, you are showing your cards, so there's a slight risk there. Fortunately, w- in the clause it stipulates that the seller has to present the competing offer that you beat. So that minimizes some of the funny business here. And this is, again, this is how in Seattle we deal with these situations where you have 30 offers on the table. They're not just offers that, you know, like, "This is my offer for 950,000." That's 20% over list price. They're, they have escalations nine times out of 10. Um, you can get a little fancy with this, and you can actually say like, "All right. Well, because I'm getting financing, in order to really stand out from the crowd, if the competing offer that I'm beating by $5,000, let's say, is an all cash offer- In that instance, I'll, I'll, I'll make it even more enticing to you. I'll, I'll beat an all cash offer by 10,000. I'll double that, um, that increment amount. And so you can get a little fancy. That'll help you if you really are concerned about not standing out against, like, an all cash offer. That can kinda help you stand out from the crowd. Um, a little tip, just so you know, we like to throw nuggets of tips here and there to y'all who are reading or listening to this so you, when you get your real estate license, you can beat us in these bidding wars. Um, but, you know, instead of just going and putting in escalations at, like, round numbers, like, uh, 800,000, it's always good to go a bit above that to an odd, weird number. A lot of times we'll go, like, 1,000 above that and then finish it with, like, some lucky numbers, maybe your birthday or something. So instead of your s- your max being 800,000, you know, 801,560, something random can kind of help because a lot of times it's that difference. A lot of people might escalate up to 800,000 and then you're now, you know, $1,600 above that or what have you, and that little bump can, again, help set you apart from those other offers that are on the table.

Speaker 1: [11:19] Yep. We've actually, with this trick, there was a time where we won an offer by only $250 and it, uh, it definitely made the other buyer very unhappy, but made our buyer extremely happy 'cause we won it for almost nothing. Like, it was awesome that we used that, that non-round number. It was great. All right. Let's, let's talk about contingencies.

Speaker 2: [11:43] Contingencies. So this is where, um, other contingencies. So this is more important than cash sometimes, and it's where offers are won or lost, and sometimes can be more important than just money alone, especially if you're within a few grand or whatever it is. Some sellers will pass up the extra money just because the contingency is better. So basically, a contingency is, you know, con- and contingent upon this happening, contingent upon this happening. The least contingencies there are in an offer, um, the stronger your offer is because there's less ways for you to back out of. So most important contingencies are financing, we talked about that, the inspection, we talked about that, and the appraisal is very important too. You can waive your appraisal, but before waiving your appraisal, if you're getting a loan, make sure that you have your agent look at what the comps are going for, is 'cause there may be an appraisal issue. And if you waive your appraisal, you're expected to pay that difference of the appraised value. So let's just say you bought a house at 1.5 million, but it only came in at 1.4 million and you waived your appraisal, well, you're expected to pay that $100,000 difference. So, um, it's very- And that's on top

Speaker 1: [12:54] of your down payment, in addition to

Speaker 2: [12:57] your

Speaker 1: [12:57] down payment

Speaker 2: [12:58] Right. So you gotta have that cash in hand. Um, some listing agents require that you have proof of funds. So if some people opt to waive their appraisal, well, some a- listing agent's like, "Okay, well, let's see if you have the proof of funds." So you don't waste their time or you don't waste the seller's time as well. So just keep that in mind. If you are waiving your appraisal, have your agent look at the comps in the area to see if there may be an appraisal issue.

Speaker 1: [13:21] I would like to jump in too and just add that one thing that we as the Awsome Awsome Group do is we want you to be 100% informed on what these contingencies mean and how they can affect you. And you don't want to just blindly waive contingencies without knowing what the heck you're doing And we're seeing this as agents that are competing against us where they are unfortunately just advising their clients to waive everything, but I- I don't believe their clients actually know what they're doing. So really make sure that you know and fully understand what each of these contingencies mean, how they could potentially affect you, and, uh, whether or not it actually makes sense for you to do that. If you're working with us, we will definitely be educating you on these so that you can make an informed decision. Okay, let's talk about earnest money. Reed, let's go into that. Can you explain?

Speaker 4: [14:17] Yeah. So, uh, your earnest money is another place where you can be a little bit creative to have a more attractive offer. So what is earnest money? This is another good thing to be educated about. Earnest money is your good faith deposit to the seller showing that you're interested and you're serious about purchasing the property. In a competitive market, like right now, it's usually around 3% of the purchase price. So what can you do with earnest money to make your offer more attractive? Well, one thing you can do is you can actually immediately release the earnest money to the seller, and that means that instead of it sitting in escrow until the sale closes, the seller actually gets that earnest money deposit from you right away and can spend it while the sale wraps up.

Speaker 5: [15:09] Exactly, yeah. That's definitely a way to sweeten the, the deal a bit. Mm-hmm. And not uncommon in Seattle to see that. It's actually nowadays, a lot of times, um, in agent-only remarks, so stuff that only us agents see on the, the listing, there will be offer instructions, which is basically what the listing agent lists as the best way to entice the seller, and they… It's not uncommon to see something like, "Release earnest money immediately or upon satisfying all the contingencies." Because obviously a contingency is an ability to back out of an, of an offer. You want those all taken care of if you're giving money to the seller that you hope, you know, you, you don't want a chance to ever have to go back to the seller and

Speaker 1: [15:52] say, "Give me my money back."

Speaker 5: [15:53] All righty, so that's earnest money. Really quick, I, I do wanna kind of rehash on something that Christian said earlier a- and kind of go a bit deeper on the, the rapport that we agents build with the other agent. When it's a competitive situation, and that's pretty much the norm in Seattle right now, it's important for us as your representative to throw everything at the wall to see, you know, to get your offer accepted. Because you never know at the end of the day what might help you stand out. So we talked about a lot of these things, about earnest money, about contingencies, about escalations. There's also reputations on the, on the line, and this can come in at the end of the day and make a huge difference. Um, Seattle is a big city, but it's actually a surprisingly small market. Top agents work together frequently, and our name, you know, our reputation is out there, even if they haven't worked with us. That's where our marketing and just us doing good work and having experience comes in handy. And so when we're working with another agent Using that reputation can, can definitely help. You know, if you've worked with an agent before, and you know that they're a solid agent, they know what they're doing, they're not gonna mess things up, they're not gonna lie or s- if, say incorrect things on accident, and you're representing a seller and you have that offer from an agent you've had a great experience with versus an agent you've never worked with, you're gonna most likely tell your client that if they're similar offers. You know, this one offer from Jason Saldarriaga at the Awesome, Awesome Group, I've worked with him. He is amazing. He's like the best guy in the world. What else can I say about myself? I, I answer the phone. But, um, okay. This also works for lenders, just so you know. Mm-hmm. Especially because you might be competing against all cash offers. And while an all cash offer isn't a, a 100% certainty, when you have a lender, there's oftentimes slightly less of a certainty. You know, there's more issues that could arise with that potentially. And so you want to help mitigate those issues. One of the ways, or the easiest ways to do so is for the lender to be in contact with the listing agent. When I submit offers on behalf of buyers, I reach out to the lender that's representing my client, and I have them proactively reach out to the listing agent when I send the offer off, just to communicate and speak to my client's underwriting, my client's finances, and to speak a- about themselves. Like, "This is how I do my business as a lender. This is my success rate, blah, blah, blah. This is how quickly I can close." And that can make a big difference, especially if you're competing against a lender who might be based in Ohio, you know, and doesn't understand Seattle's forms and Seattle's market and how we do things. Everything helps, reputation being one of them. Reid, if you wanna speak really quickly about how we organize offers, how we write them up.

Speaker 4: [18:48] Yeah. So speaking of those forms, as with anything that you write and are going to present, a clean and well-written offer can go a really long way. Just grammatically correct, the order of the paperwork, making sure you're not missing any paperwork is really essential. And then another tip we like to give is that along with your offer, it can be a great idea to email the listing agent and tell them about the offer highlights. So just outline for them things like the offer price, your escalation amount, contingencies you waived, all that stuff so that they have it right there in an email, because you don't want an agent who has 30 offers to go over to miss your escalation page and, you know, some other important part of your offer that will pretty much defeat the purpose of everything we've just talked about.

Speaker 1: [19:40] Yep, definitely. And I've, I've had it… Well, being on the listing agent side representing the seller, we've definitely seen a lot of poorly written off- that are just All over the place, and it makes our job a lot harder. And when you have, you know, 5, 10, 15, 30 offers to choose from, and you see one that's extremely messy and missing things, you're just gonna put that one at the back of the stack. And it's just, you know, i- if it's messy at the beginning, you can assume it's gonna be messy the rest of the way. And that's, uh, unfortunately gonna put that buyer, uh, not in the best light of the seller and the listing agent's eyes.

Speaker 4: [20:22] Right. Being well-written can just … You know, you, you wanna stay in the game as long as you can. You don't wanna be counted out right away.

Speaker 1: [20:29] Exactly. All right, so in today's market, there are usually offer review dates attached to each offer. Now, what that means is, let's say an off- or a house comes on the market on a Wednesday. They will stipulate within the offer, and this is public knowledge, that there is an offer review date of, let's just say, Tuesday of the next week. So it comes on Wednesday, they're on the market all the way until Tuesday.

At Tuesday at 2: [20:59] 00, they're gonna look at offers, all the offers that come in. That's generally how the market is working right now. Now, one thing that you can do as a buyer, and as a seller as well, you can actually make an offer early before this offer review date. And as a seller, you can accept an offer before your offer review date. Now, there … This is kind of a, a fine line where if you get an offer early as a seller, you might wonder if you're leaving cash on the table, if this really is the best offer that you're going to get. And as a buyer, you might want to make an offer early to, you know, get a head start in front of all the competition that you're assuming is gonna be out there. One reason why you might wanna make an offer early is because you are 100% in love with this house. Every house is unique. Like, there's no two houses that are exactly the same. Even if it's the same builder, built the same year, they're on different lots, and the lots can be different. So no two houses are exactly the same, and if you find one that checks off all your boxes and more, and you are just 100% in love with it and you have to have it, it might make sense maybe to make an early offer, and just put your best foot forward. Now, when you are making an early offer, you're not going to be having an escalation clause in there, like we said earlier, because you're not competing against any other offer. You're going in blind, you're making your best offer right up front, and you're trying to see if it's enticing enough for the seller to take their house off the market and accept your offer early. It's, it's a little bit of a risk on the buyer side, because you could risk overpaying. Uh, and the seller could risk accepting an offer early that maybe isn't the best offer that they're going to get. So it's a double-edged sword. Sometimes it works, sometimes it doesn't. But it's a potential opportunity for you as a buyer if you are really interested in this house to, to really just give it a shot. All right, so those are all of the tips and tricks that we have. Well, maybe not all of them. Those are a lot of them. We obviously have to keep a little bit in our back pocket, because we don't want to share everything, because then every other agent out there is gonna beat us. But those are the majority of the tips and tricks that we have to make your offer the strongest it can possibly be. If you liked what you learned today and you're a buyer or a seller out there, and you want to talk with us and see if we are a good fit to work together, you can always do that. We are easy to chat with. You can always schedule an appointment with us right online, awesomeandawesome.com/schedule. 100% free to talk with us. It doesn't cost anything, and we can just see if we're a good fit. Uh, we do strategy sessions with people all the time. That's about it. If you are also a buyer out there, probably not a bad idea for you to jump on one of our free online home buyer classes. You can do that at beersandhomebuying.com. That's beer as in the drink, beersandhomebuying.com. We have another class coming up here at the end of February, and every month we have one. Uh, so if you are a buyer out there, feel free to check that out and, uh, potentially sign up for one of those. That's it for today. Thank you very much for joining us, and we'll see you next time