What do I do if I'm in a bidding war?
"Highest and best," also known as a bidding war often strikes fear into the hearts of buyers who feel like they are unprepared for a battle royale. In reality, highest and best is a fair solution to the lopsided supply and demand realities of a competitive market. Rather than pitting buyers against each other by negotiating with multiple parties simultaneously leading to prices rising out of sheer frenzy, highest and best is a way for buyers to make an offer they feel comfortable making and leveling the playing field.
In any properly priced sale, it is common in a market like New York for the seller to receive multiple offers. However, trying to negotiate with buyers ultimately plays one offer against others and can falsely drive up the final sale price to something the final buyer feels is not fair. If buyer A offers asking, the only way to negotiate with buyer B is to say go above ask, now that's the new number, and Buyer C or Buyer A have to match or exceed that, it becomes an endless loop that leaves buyers frustrated and puts most seller's agents in a very awkward situation.
Highest and best eliminates this risk, so that when the final offer is accepted, all parties feel more satisfied with the outcome – the buyer who has come out on top still feels like they have gotten a good price for the home, the seller feels like they have gotten the best offer available to them, and buyers who did not come out on top feel more accepting of the situation, since a higher offer would not have been possible or comfortable for them. Like any blind bidding situation, research and knowledge of the market can help structure an offer, but at the end of the day, it's a personal decision for the buyer.
Overall, it is certainly not something to be nervous about. It is, however, incredibly beneficial during this kind of bidding process to work with an experienced and deal savvy agent who can help you frame your offer in a way that ensures it is the best possible given your goals, assets, and finances.Here are tips to navigate a bidding war:
1.) Find out as much as possible about the competition.
If the first open house is mobbed, chances are there will be multiple offers within the next couple days. A buyer’s agent can probe for information about interest and the bidding timeline, and may even gain some insight on where the initial offers are. Note that the usefulness of this information will be limited since seller’s agents won’t actually know what to expect until the “highest and best” deadline.
2.) What other terms are important to the seller?
Sellers care about more than just price. For example, accommodating a seller’s preferred closing or move-out date could add value to an offer.
3.) Write a letter to the owners.
For a seller who has spent a long time in an apartment or has lovingly renovated it, knowing that someone will appreciate and care for their home can be an emotional factor. An effective letter won’t mean an offer will necessarily be accepted over a higher or better offer, but if it’s a close call, a sincere letter might tip the scales.
4.) Have your agent prepare a thorough offer packet.
A thorough and professional offer package that anticipates and addresses any questions not only signals that a buyer is serious and ready to move forward, but also that the buyer’s agent will move the process along efficiently. A sloppy package that lacks critical information creates doubts as to whether a buyer can actually complete the transaction, and at the very least, usually means more headaches for the seller’s agent who would likely prefer to work with an experienced colleague on a smooth transaction.
5.) Consider your contingencies.
To win a bidding war, buyers don’t necessarily need to be all-cash or waive their financing contingency. An experienced agent can advise on ways to structure the offer that can level the playing field without compromising their financial position.
6.) Picking the right number.
Finally, the most stressful part: picking an actual offer amount. No one has a crystal ball to predict how high the price will go, so it is imperative that the buyer be comfortable with their “highest and best” offer — whether they win or lose. A buyer’s agent can provide color on comparables or how similar listings performed, but ultimately, whether a buyer goes 2% or 10% over ask, or not at all, is a personal decision. I tell my buyers that they should pick a number where if they lose, they won’t wish they had offered more, and conversely, if they win, won’t feel they overpaid.
Though bidding wars have become less common from their heyday (roughly 2013-2016 where most properties, especially in Brooklyn, received multiple offers and went as high as 10% over-ask), even in our current market, special properties that are priced right will garner multiple offers and often sell over-ask. Bidding wars really are not as scary as the name suggests — a good agent can guide you through all of these steps, and have no regrets about the outcome.