The Art of War – How To Win The Real Estate Bidding War, That Is

You have probably heard of the ancient Chinese text “The Art of War,” written by Sun Tzu in the 6th century BC. The treatise is a philosophical guide to battle and has, amazingly, stood the test of time – it is as relevant to today’s business climate as it ever was to Chinese commanders six centuries before Christ was born.

In today’s real estate market, investors are swarming over the low end of the market, and engaging in serious combat over who gets to own the most attractive properties at the lowest prices. REO agents have acquired a reputation in Los Angeles for underpricing properties and attracting serious bidding wars for their properties. It has gotten so bad that many would-be first time homebuyers find themselves out in the cold – they have neither the finances to make an all-cash offer, nor the financial savvy to structure a deal that will allow them to “win” the battle and walk away as homeowners.

What did Sun Tzu write that could be relevant to this modern struggle? How about the following:

All warfare is based on deception.

Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.

. . .

[W]hat enables the wise sovereign and the good general to strike and conquer, and achieve things beyond the reach of ordinary men, is foreknowledge.

Now this foreknowledge cannot be elicited from spirits; it cannot be obtained inductively from experience, nor by any deductive calculation.

Knowledge of the enemy’s dispositions can only be obtained from other men.

Hence the use of spies . . ..

What can be taken from these principles? Appearances count – as does inside knowledge. So, when you are bidding on a property it is helpful to appear as serious and professional as possible. Obviously, you can’t lie. But, if your offer is put together in an unprofessional manner it will not help you win the battle.

Even if the buyer is a first-time homebuyer, enlisting the help of a seasoned agent who knows the market can make all the difference in the world. A good agent knows what the banks are looking for, how much the property is really worth, and will help you craft an offer that meets the needs of the seller as best as you possibly can. Here’s one example: on a short sale, if it is a property you are seriously interested in, you might go ahead and offer to pay for an inspection – even before you get into escrow. Yes, it will cost you a few bucks and it is money you are putting at risk, as you will never see that money again if you don’t get the property. But, particularly if it is an approved short sale, you may find that your modest investment will demonstrate the seriousness of your offer.

Money talks, and if the bank knows that you are willing to put your money where your mouth is, even on something as minor as an inspection, they may believe that you are willing to go all the way to a closing and favor your offer over those of the competition.

Another point – just as Sun Tzu recommended the use of “spies” you can have your own. Oddly, perhaps, the seller’s agent may be your best spy. Seller’s agents will frequently disclose even more than they are really supposed to, either because they don’t want to say “no”, or because they are really trying close the deal with you and collect their commission. So go ahead and ask – is the short sale approved? Are there any other offers on the property? For how much? (Yes, sometimes they will hint as to the amounts!) What is the bank looking for? How long does the bank typically take to respond to an offer?

Answers to these questions (provided you can get them) will help inform you so that you can put together a winning bid for the property.

Even Sun Tzu would be pleased with your victory.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.