Monday, April 2nd, 2018
Cash may be king, but words are pretty powerful, too: One of the most effective ways to win a bidding war is to write the seller a letter.
All cash offers nearly doubled a buyer’s chances of trumping others, while waiving a financing contingency — effectively agreeing to forfeit the deposit if a buyer can’t get a mortgage — boosted a buyer’s odds by 57.9%, according to new data. Surprisingly, penning a cover letter came in a close third, increasing a buyer’s odds by 52.2%.
The data are based on about 14,000 offers in 2016 and 2017 that involved competing bids and were written by agents at Redfin, a real-estate brokerage.
The numbers underscore the emotions at play. Perfectly rational sellers should choose the highest bid. But often offers that minimize downside risk, like one that doesn’t tie the sale to securing a mortgage, are more attractive than offers that maximize upside — like a higher offer that requires a loan.
In addition to flattering a seller’s ego — or assuring him or her the home will be cared for — a letter can also signal that the buyer is serious, which translates into a willingness to follow through even if hurdles come up in the sales process. In this way, the letter is another tool to increase the seller’s confidence.
Some bidding-war tactics will fail to improve buyers chances because they are too commonplace in competitive markets. Waiving a buyer’s right to revise or break off a deal if a property fails a home inspection, for example, offered no significant boost, according to the data.
Conversely, certain tactics like escalation clauses — an agreement to beat the highest offer by a certain amount — might work in some cities, in other places they might put off a seller or agent unfamiliar with this tactic.
These are the percentage of offers that included a strategy designed to make the potential buyer’s bid more competitive according to the recent Redfin survey:
40.4% Client Letter – Potential buyer writes to the sellers in hopes of persuading them to accept an offer
24.8% Escalation clause – An arrangement that automatically inceases a buyer’s bid if a competing buyer bids higher
24.1% Inspection contingency waived – Potential buyer can’t cancel or renegotiate the contract based on the results of a home inspection
16.0% Financing contingency waived – Potential buyer’s offer is not dependent on his or hers ability to obtain financing
8.7% Preinspection – Potential buyer commissions inspection before making an offer
6.9% All cash – Potential buyer agrees to make purchase without third-party financing