How to WIN a Bay Area Bidding War
So how do you succeed in one of the East Bay’s most competitive markets that employs a bidding war strategy? Well, that’s what we’re going to talk about today.
How do you win in this market? What’s going on and why does it feel like a bit of a black box for most people? To shed some light on that process, I’m going to take you through the process of a recent negotiation that I did on behalf of a seller here in Alameda.
Let’s discuss the strategy we used to get a contract and a bunch of offers. I’ll also show you what I presented to the seller, how we thought about it, and what ended up happening to give you a sense of where we went. So, get ready to take some notes as I’m also going to give you some takeaways and tips on how to think about this process of going through a bidding war a little bit deeper.
An Alameda starter home that ended up with nine offers
Before we dive into this, let me first set the scene. It all started with this wonderful starter home we had. It was priced attractively at $995,000 as a teaser price in the Alameda’s East End. Because of that, we ended up having an outstanding number of showings and a ton of energy at the open house. So, we knew we would have a fair amount of energy going into the offer day. But, we didn’t know exactly where it would land.
Then, offer day came, and we ended up with nine offers. Two of them were pretty much throwaways. Thus, in a sense, there were really seven players in the bidding process in this particular negotiation. What we ended up doing was taking those nine offers and putting them all on a spreadsheet. I want to show you that spreadsheet first, explain to you what happened, and share some takeaways on how you can be more effective in negotiations going forward.
The actual spreadsheet we used on a recent home that we listed and got multiple offers
What we’re looking at in the video at the 02:17 mark is an example of an actual spreadsheet that I used in a recent negotiation. It was instrumental in going through the offers and breaking everything down for my sellers. That is what I showed them physically, including the actual written documentation in a Dropbox link. Also, this is pretty similar to what most sellers will be looking at, whether in writing or on a spreadsheet, just like this. Or, perhaps a net sheet, meaning taking the price minus all the closing costs, commissions, and loan payoffs. In short, what’s your net? Some agents go that far as well. We, however, generally don’t because all of this stuff can change throughout a negotiation and still change the outcome.
There are three main things about this case that I want to share with you. First is where the seller’s head was or what they were considering at that time. The second one is my advice to them. And lastly, where we went or what actually happened.
As you can see from the spreadsheet, we had nine offers in this particular case, with the prices as the headings. I took out some of the personal information to protect everybody. That is because it hasn’t closed yet, obviously, and to not spoil the fun on that one. But this is what we’re looking at in this particular case. We had some cash, had many different days to close, different deposit amounts, and all this kind of stuff. Included also in this spreadsheet are contingencies and any specific closing terms. It could be splitting the county transfer tax or taking it on one side or the other, expiration, etc.
Different Offers in the Bidding War
So, obviously, we’ve got a wide range of offer prices. Offer No. 9 was below the asking price, while Offer No. 8, in contrast, was just above. Also, in this negotiation, we had an offer that was way at the top, with $1,350,000 to start. We also had two, Offer Nos. 2 and 3, which were tied at that $1.3 million mark. And then we had a couple of others that trailed with prices starting at $1.2 million.
And, just to add more context for you, the sellers were open to this $1,350,000 offer from the get-go. They liked that it was a solid 20% downpayment and had no contingencies. It was an excellent price, at roughly over $1,000 per ft.2.
Frankly, they even talked about already taking that one. However, I knew that the guys behind Offers 2 and 3 also really wanted the house. I had been talking to their agents the entire marketing process, and they had made their intention known. So, I said to the seller, “That’s great that you like that offer; it’s not a bad offer at all. It’s an excellent outcome for your home. But I think we can do a little bit better. I think we should at least give some of these guys, No. 2 and No. 3, the opportunity.” However, keep in mind that we also don’t want to take a backslide. We don’t want to spook the guys behind Offer No. 1. That’s because our next backslide will be pretty substantial. From a negotiation standpoint, we would lose a lot of leverage.
A Seller’s Bidding War Strategy
This is the strategy we came up with: basically, we would work our way up, making phone calls, from Offer No. 9 to Offer No. 1. So, we called and told each of them roughly where they were with the other offers. We also told them that if they had any room to increase their offers, they might as well do it now. And that’s basically our whole strategy. We wanted to see if anybody would come up and challenge our front-runner. That’s because, again, if no one was going to challenge our front-runner, the sellers were just going to close it with the front-runner. That’s the reason we did it in that order and how the sellers wanted to proceed. They wanted to see if anyone else, aside from the original front-runner, would prevail.
Because offers numbers 8 and 9 didn’t even pick up my phone calls when I called them, in the end, we were left with just these seven people who were communicating, listening, and engaging in the process. As we called the next four offers, from No. 7 to No. 4, a lot of them actually increased their offer prices. Some even went up as high as $1.3 million. But eventually, all of them bowed out in the end.
Bidding War between Offer Nos. 1, 2, and 3
Next, we got up to Offer Numbers 2 and 3. I specifically wanted to see what these guys would do. We called both of them and told them where we were at that time. Then, eventually, they decided to increase their offer prices. Ultimately, Offer Numbers 2 and 3 raised their prices by $75,000 and $100,000, respectively. Once we knew that, we finally got Offer No. 1 involved. Our front-runner at that time ended up matching the new offers from Numbers 2 and 3. However, Offer Number 2 took 100% of the city transfer tax, which bumped the seller’s net up pretty substantially. Thus, it ended up going in their favor, and the sellers declared them the ones who won the contract.
I’m telling you this to give you some context on what’s going on when you’re looking at the spreadsheet. I want to give you an idea of what the seller was probably hearing, seeing, and feeling and also, lay down for you the strategy used by the seller. Obviously, every strategy is a little different based on what you have in front of you. Nevertheless, it is a strategy that gives you what you need to know once you get that phone call.
Takeaways and Tips that can be used in Bidding Wars
Now, let’s talk about some takeaways. Here are a couple of big takeaways that I think you need to pay attention to when you’re in a bidding war.
Takeaway/Tip No. 1: The seller will always look first at the high-level offers.
The first tip I have for you is this: the seller will always look first at the high-level offers. They’re often going to be physically written down or in some version of a spreadsheet. Or, perhaps there might be a net sheet involved. And, I’ve heard of some agents actually calculating all of the numbers and looking at the bottom line net.
In other words, they’re going to distill your offer down into 1-3 categories that matter most to them. They’re going to take a lot of complex information and try to make it simple. So keep that in mind when you’re writing your offer and thinking about what to offer them. It might be helpful to consider how much they owe on the property. Then, couple that with what their nets will look like and how you can make that offer more attractive. Look for ways to pull levers in a way that you won’t end up just spending more money.
Takeaway/Tip No. 2: Figure out how many other people are in the game.
Second, you need to figure out how many other people are in the game. Almost everyone who asked me in that negotiation asked how many offers we had received. For example, if you have nine offers, you need to know where you stack up in that mix. Your agent, you, or whoever needs to ask where you stack up and what kind of ballpark you’re looking at. You could be at the bottom, the front, or the middle of the pack. That’s why you need to ask, because if you don’t, then you just wouldn’t know. So you really need to try and get that information out of there as quickly as possible.
Takeaway/Tip No. 3: Sellers generally have a bias towards those who come in strong from the get-go.
Third, sellers generally have a bias towards those who come in strong from the get-go. Well, frankly, this is true for both sellers and agents. Something psychologically happens when someone comes out of the gate really strong instead of being negotiated up or pulled up into the number one position. It has a lot to do with the ease of the escrow, buyer’s remorse, people second-guessing once they put their deposit in, being a little pickier, or a little harder to deal with in the escrow. And so, if you’re leaning between writing a little bit less aggressively and assuming you can just negotiate your way up, don’t assume that. Don’t just automatically assume that the negotiation will happen because someone may want to jump out in front.
In other words, someone might make a better offer than you from the get-go. And when that happens, the seller may be more inclined to deal with that person because they showed interest by immediately putting in a bigger offer right out of the gate. Always keep in mind that there is a psychological effect when you make a more substantial offer out of the gate versus holding some money back and then assuming you can negotiate your way up with it. There is value to writing a bigger offer other than just having a big number, psychologically speaking.
Takeaway/Tip No. 4: Understand who the seller is.
The fourth thing I think is vital to know is who the seller is. Try to know and understand who’s on the other side. I don’t mean that in a way that I’m trying to write a love letter. Or, I’m trying to get emotional with them because I’ve done other videos on that. That’s a hot topic relative to fair housing right now, but in general, what you want to find out is how many decision-makers are there. Ask if the parents are involved in the decision-making. Are the grandparents involved? Are the kids involved?
Also, is there a trust fund, and how many trustees are there? Is there one trustee who then has to talk to six family members? Are they in different time zones? What is their timeline to be able to make a decision? What is their mindset going into this to some degree? Are they trying to make a fast decision, or will they need the night to sleep on it? You have to try and understand who is on the other side of that table. Hopefully, you can tee your offer up most effectively by doing so.
Generally speaking, it would be best to transact with people looking to respond and give you some feedback on the same day.
But just know that you need to do your diligence in finding out who those people are and what they’re all about. Because, for example, if you’re negotiating with the trust and there’s a head trustee and that person has a spouse, and then there are three siblings, and they all have spouses, that’s a lot of opinions. And frankly, that’s a lot of people to get to agree to counter an offer rather than just take one. And that’s been my experience, that when you have a trust and many trustees or secondary decision-makers, you end up, oftentimes, just taking the one off the top because it’s easier, right?
Just a quick anecdote. Unfortunately, I was on the losing end of a bidding situation. We got beat out by $10,000. The offer price we put in was not a substantial amount of money. And my clients could have come up with a way to exceed the next offer. However, the sellers just went with the higher offer because there were too many decision-makers on our side. It would have been too problematic to pull information from them and then put it together. And the sellers decided they weren’t having all of that, and understandably so. We didn’t even get a shot to increase our offer. So just know who’s on the other side and what you might be able to expect, then make your offer accordingly.
Takeaway / Tip No. 5: Try to determine what expectations the seller has from a price standpoint.
There’s another bit of information you may want to try and glean from the listing agent. Whether you’re an agent or you’re the buyer, maybe you can find this out if you visit their open house or not. That information would be what that agent has been trying to tell that seller. Try to determine the seller’s expectations from a price standpoint. Perhaps, maybe from the perspective of having multiple offers. That’s because if you get that baseline and you somehow understand where the seller’s head is at, timing-wise, price-wise, competition-wise, you can then figure out, hopefully roughly, what they’re expecting. And the game plan from then on is to try and exceed it, or need it, or what have you. It’s really important and harder to get that information. But if you can get it, it will absolutely set you up for success during the negotiation.
Summary
In summary, what I’m really trying to say is, the more information you have about this process, the better. Now you’ve seen what a spreadsheet looks like. Now you see one version of a strategy based on how offers came in on the day. And one thing you really have to understand is that this is a very nimble, fluid process. There is no cookie-cutter way to do this. People saying, “You just counteroffer this or invest highest in that,” are missing a lot of nuances. That’s because, as you can see from our spreadsheet, we have a lot of different offers. We had some cash, some investors, and one who went below the asking price.
We had some who actually had a VA loan in the mix there. It goes without saying that many variables end up playing a factor in how you end up responding. So it really wouldn’t hurt to know the agent on the other side and some of their tendencies. It would also be beneficial to know who the sellers are and also how many decision-makers are there, how quickly they’re trying to make a decision, etc. Because if you could do all of these, not only would you make a better offer and a better-informed decision, but you would also be able to develop a better strategy for your offer day. And hopefully, that will give you a higher chance of winning the house.
I hope my blog on How to WIN a Bay Area Bidding War has helped you.
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