The Art of Winning a Real Estate Bidding War (Part 2): Choosing an Agent
Continued from Part 1: How Are You Going To Buy It?
If you have been searching for a property to purchase on Oahu during the past few years, you will know that it is a seller’s market. As you see new listings come on the market, you probably aren’t surprised anymore that the property is in escrow before you can get to the front door.
Or you show up at the first open house and are instructed to have your offer in for seller’s review by a certain date and then find out that you are competing with several other buyers. You have your agent monitor the situation and they report back to you – “There are currently 3 offers including yours…” A day later and the next report – “Oh, now there are 5 offers, plus yours.” In 2015, I observed two bidding wars on homes that each received a total of 13 offers.
Why is Proper Representation so Important?
Other than your commitment to stay in the battle until you have procured a property that works for you, a big part of being able to compete with other buyers depends on your agent’s ability. First, you should know that buyers do not pay commissions. A lot of real estate agents, including me, often assume that the public knows this. However, once in a while I will be working with a client in search of a property and at the outset the client will ask me what my fees are.
Several years ago, a gentlemen contacted me to represent him in a home purchase for his family. I did a search for him, we identified a property, submitted an offer that was accepted, and we put it in escrow and closed. A few days before closing we did the final walk-thru of the home to verify everything was in order, and at that time, my client asked me how much he owed me for my work. Of course, I smiled and told him, “You don’t owe me anything.”
The seller pays a commission to the listing brokerage – that represents them – and in almost all cases, the properties listed in mls contain an agreement wherein the listing brokerage agrees to pay part of that commission to the buyer’s agent brokerage. So when purchasing real estate, I believe it is in your best interest to have a buyer’s agent represent you.
When your agent sends you active mls – multiple listing service – listings to look at, please know that if the status on the listing changes from “Active” to “Active Continue To Show,” this means – under contract with contingencies. Listing is available for showing and back-up offers are being accepted. Public websites usually indicate this status as “Contingent.”
By the way, a listing that indicates a status of “Active” can also be under contract and in escrow as listing agent is required to change status within fifteen (15) calendar days from date of accepted purchase contract. So listing agents typically retain the “Active” status until the contracted buyer has completed their due diligence/physical inspection of the property. So the only way you can really know if the property is still available is to have your agent contact the listing agent.
You want an agent who is capable of writing an intelligent offer/purchase contract, free of errors, because contract typos and mistakes will be interpreted as a red flag to most listing agents in which case they will probably advise their seller to pick another buyer if possible. If you aren’t already familiar with the current purchase contract used by realtors, it is best to have your agent send you a template so you can get familiar with it. This takes takes some of the anxiety out of the process rather than having to go through 14 or more pages of contract for the first time while attempting to submit your best offer in a already stressful competitive situation.
When I say “intelligent offer,” I mean there should to be a strategy in place that is followed to write the offer/purchase contract in a manner that is consistent with the circumstances of the subject property. Sometimes I see offers submitted on listings where the buyer’s agent appears to be using a generic cookie-cutter purchase contract template that contains contingencies and timelines that put the buyer at a disadvantage in a competitive situation. Then the buyer is at the mercy of the seller either rejecting the offer or hopefully countering the offer with terms that make sense under the circumstances.
When a property is so hot that several buyers are competing, I have seen agents submit offers with most of the contract contingencies deleted. For example: no physical inspection, no termite inspection, no cleaning required, no final walk-through, etc…only contingency is final loan approval and buyer will close. That could be justified if you visit a property that totally fits the bill and you can see that you are going to have serious competition. In any case, a buyer should hire and schedule a professional home inspector to inspect the property prior to closing.
If you are nuts about a property and really want to make sure your offer is going to be “hard to refuse” and delivered on a “silver platter,” then consult with your agent on what buyer contingencies can be removed to a point where you are still comfortable with protecting your rights under the contract.
Ultimately, you really need to pay attention to how your agent fills in the blanks on the purchase contract. At our brokerage – as in most – agents are required to submit purchase contracts for review and signature by the principle broker or broker-in-charge before sending onto clients for signature.
If your agent sends you a purchase contract for review and signature and you find typos, inconsistencies, and/or language that doesn’t make sense to you, query your agent. There could be mistakes that the agent and reviewing broker missed that could hurt your chances of getting an accepted offer. I bring this up because for every listing that receives multiple offers, I usually see at least one offer that is not up to the acceptable standard and you don’t want to be a party to that.
Want to Know More?
In my next blog of this series I will discuss what I call the “beauty contest” aspect, or to put it another way, how to get yourself or you and your family in front of the seller/sellers and personally win them over.
If you have any questions about the art of winning a real estate bidding war, or would like to know about real estate opportunities on Oahu, please contact me.