Los Angeles, San Francisco, New York… all face bidding wars recently. I personally got into one few months ago on a fixer in Silver Lake / Echo Park area of LA. It’s was listed under $600K as a probate sale. Within less than two weeks sellers had 62 offers on the table.
Here are my tips to navigating Los Angeles all-out bidding warfare.
Figure out just how hot the property is before engaging
Most buyers stumble somewhat blindly into a bidding war, not knowing what other offers are being entertained. Generally you know if you go to an open house on the weekend and you saw 50 people in there, that the property is hot. But what about all private showings? Ask your agent to ask the listing agent what’s going on. You would be surprised how little buyer’s agents ask about. Yes, the listing agents not supposed to tell you many things but in reality they do. Or at least you can read between the lines…
Paperwork is your friend
My advice is to be very prepared with all the information, Don’t ever present to sellers just an offer. Have you bank statements /proof of funds ready, copy of EMD, copy of your FICO score, pre-approval (not pre-qual) from your lender.
Write a love letter
If a picture is worth a thousand words, a good letter can be worth a few thousand bucks. Too often we forget that it’s a very emotional moment when people sell their home. For many sellers it’s important to hand over a house to someone who appreciates the home and the work the sellers put into it. Last year I submitted an offer on a house that already had 2 other offers on it. Our offer was the lowest and actually we won! We wrote a letter explaining our personal situation and all the reasons why we love this house and why we need to have it. Sellers were so impressed that accepted our offer even though it was $8000 under the highest offer.
Half a page up to a whole page is perfect. You want it to be descriptive enough to say who you are, what you do, how long you’ve been looking. A few carefully chosen details about the property and why it’s a good fit for the buyer comes next.
This is almost never enough to make up for a lowball offer, or a hole in your credit, but it can make the difference in identical offers or offers that are a couple of thousand apart.
Money isn’t everything
Sure, it’s important. But the highest offer isn’t always the accepted offer. A higher down payment or all cash can mean a lot to a seller.
By offering a higher down payment, you increase the stakes; you’re offering a little more collateral. This can make seller feel more secure that you will not back out of the deal.
Bid an uneven number
A lot of financial guys have as their strategy: trading in uneven numbers. So instead of bidding $1 million, they’ll bid $1,012,572.
First, it’s a little higher [if it were a $1 million property], but it looks odd so it gets the attention.
For those who are skeptical, it worked for me before. We were bidding on a property in Los Feliz (right on the border with Little Armenia) earlier this year. We employed every single trick in the book — everything was in order, we went very hard on our offer, submitted a fuzzy letter, offered a higher downpayment, but we also submitted $2,200 over our standard break point — and low and behold, we got it.
Know when you’re licked
Set a number in your head where you say, ‘Over that, I don’t feel comfortable buying it”. If that number has been breached, walk away.
Real estate is such an emotional investment that plenty of people get caught up in a bidding war that they can’t afford. At the end you have to be less emotional and more business.
When all else fails, overwhelming firepower usually succeeds
On the flipside, if you can afford it, you can purchase victory with an overbid. Depending on the market sellers usually list the property under it’s current value by 2-10%. If there’s no investors involved who usually know their numbers, if you offer 11% over asking you pretty much get the deal closed in majority of cases. So do your numbers, work only with agents who can properly evaluate the property. Remember there is no such thing as agents “specializing” in certain area of the city. There are only agents who either know how to evaluate the value in a micro market perspective or not.