The Savvy Buyer’s Guide to Winning Deals in an Seller’s Market

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It doesn’t always mean paying too much. There are ways to win even without the highest price. We’re smarter than that; we’re investors.

In a seller’s market there are more buyers than there are sellers. Finding a single family investment in this type of market can be difficult. Most good homes sell in a few days for over asking price with multiple bids. It can be frustrating to watch property values go up every month while continuing to lose. Time really is money in these situations.

The common belief in a seller’s market is that more money always wins. This isn’t always true, though it does help. There are other ways to win. Let’s understand it from a seller’s perspective.

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The 3 Most Important Factors for Sellers

  1. Good return on their property.
  2. Sell on their own timeframe.
  3. Have a smooth, trouble-free transaction without surprises.

Let’s break down these pieces and learn how to appeal to sellers and win more bids.

Sellers Don’t Want to Lose Money

Sellers are paying for two realtors and closing costs. They are already spending a lot of money so don’t upset them with a low bid right away when your competition will pay more. Give them a fair bid if it’s already on the market.

Related: Forget the MLS… Here Are 7 Clever Ways to Find Great Real Estate Deals!

Most of the “good deals” are going to be gone quickly. Another option is to only look at houses that have been on the market for a month or more. An overpriced house typically won’t get any bids, and sellers get frustrated. After a month they will be more willing to take less than it’s worth or a price that will cash flow for you. This is also about the time where they start thinking about dropping the price. You’ll want to get in before that happens.

Sellers Want to Sell on Their Timeframe

If the house is vacant, most sellers will choose the offer that is the most likely to close quickly. Mortgage brokers can close a deal in as little as 2-3 weeks, whereas banks will be more in the 4-6 weeks range. Most sellers are still paying a mortgage, which is costly when you’re also spending money to move and rent or buy another place. Let them know that you can get it done faster than everyone else by having your lender call them after putting in a bid, and tell them you can close fast.

If they are still living in the house, your realtor should ask when they want to move. That’s when the closing date should be. No one wants to be homeless for a few weeks. They want to conveniently move to their next destination. You can also offer to rent the house back to them for a few weeks to make their transition easier.
Write an escalation clause into the contract. This just says you will pay $X over the highest bid up to a max of $X if they show proof of the highest bid. This can be a double-edged sword because some realtors will reject your bid and counter it with your highest stated price. Use with caution.

Sellers Don’t Want Any Problems

Sellers don’t want to fix a hundred things and pay for them out of pocket after inspections. Real estate contracts have an inspection contingency that says the buyer can do inspections and back out of the deal for any reason during the inspection period and get their deposit (earnest money) back. You can opt out of this contingency and lose your earnest money if you back out. Sellers love this because it shows you are more serious, but make sure you add into the contract that if cumulative repairs are over a certain dollar amount, you get to still back out if they don’t do the repairs. You are giving them peace of mind in exchange for a lower price.

Don’t send them a preapproval letter — or worse, a prequalification letter with your bid. Send them an approval letter from your lender that has already gone through underwriting. When you put in a bid, have your mortgage broker call the sellers realtor and tell them you have already been approved and why that benefits them. Most banks won’t do this, so you will need to talk to a mortgage broker. A preapproval or prequalification just means you probably can get a loan. An approval means you have already been approved for a loan, and you only need an address to put on the loan.

Put more deposit (escrow money) down. This will make you look more serious because you have more to loose if you break the contract. If you don’t break the contract, you get it all back.

Pay all cash. Most sellers will forego the highest bidder and go with the all cash bid because they see cash buyers as more serious because they have more to lose. Cash buyers can also close a deal in two weeks, which makes them even more desirable. If you have a good mortgage broker and you are already approved for a loan, you too can close in two weeks.

Be more than a piece of paper with numbers on it. Write a letter to the sellers and attach it to your bid telling them how much you love their home. Tug at their heartstrings and make them feel good about you. Tell them how it will benefit you to live there if you’re going to live there. Everyone wants to feel like they’re helping someone else. If you’re only numbers on paper, then you have to be the biggest number to win.

Find homes before they hit the market. If you can find homes before they hit the market, you can save time and money. Here are a few ways to do that.

How to Find Homes Before They Hit the Market

Drive around neighborhoods you want to buy in and look for large remodels or construction on an existing house. Sometimes these homes will be in the process of being fixed up and resold. You might be able to buy it early and save money.

Related: 2 Tips to Help You Land That Great Deal — Even if it Looks Like a Goner

Have your realtor get you names and addresses of potential investment homes where the owners have lived in their homes between 7-10 years. Most homeowners sell after 7-10 years, so you could send them a card asking if they want to sell. This card should have the name of your lender on it so they can call and know that you are a real buyer. Sometimes your lender and realtor will get together and pay for it for you.
Ask your realtor to email people in their office and people who sell a lot in that neighborhood to see if they have anything coming up that you might be able to see before everyone else does. Most real estate offices have weekly meetings where they talk about homes coming up. Make sure your realtor goes to these meetings to help you out.

The most important thing you can do in any situation is have your realtor ask the sellers what they want. An open question is best. So few people do this and miss something important that will help the seller and increase your chances of winning. If you and your realtor were the only ones (you will be) who took the time to ask what they wanted and pointed out to them in a cover that you made those changes, you will have done your best. Besides, why wouldn’t you want to work with the person who cared what you wanted? A three minute conversation can save you thousands of dollars, and the sellers will be happy you asked.

Investors: What would you add? How do you snag deals in a seller’s market?

Leave your comments below!

About Author

Brett Lee

Brett Lee is a licensed Real Estate Broker in Portland Oregon where he helps people achieve a better future so they can do the things that truly make them happy. Brett is also a buy-and-hold investor, property manager and investment advisor.

5 Comments

  1. As a real estate attorney, a property manager and an investor I truly appreciate your content. However, I’m adamantly opposed to people actively soliciting off-market listings because it is wrought with fraud and elder abuse. While I was practicing law I successfully received rescission (1 jury trial and 2 arbitration awards) for 3 separate clients in California who sold their homes “off-market” to aggressive “investors.” In each case the “investor” had violated California law, had committed fraud, and 2 out of the 3 “investors” ended up losing their real estate license.

  2. Brett Lee

    You’re right. Most buyers know what their homes are worth before investors come in so the people I work with simply don’t have to pay way over asking price as is the case sometimes when things hit the market in a tough environment. If they are essentially stealing and not giving fair bid that is not right and I won’t help anyone do that. It’s morally wrong also. I just tell them when something is coming up so we can bid as soon as possible before most people have a chance to see it or put in a bid. Give them the upper hand as far as timing. I’m glad people are being prosecuted for doing unethical things. Thank you for doing that.

  3. Walker Hinshaw

    Hi Brett, thanks for your post. I am currently attempting to navigate a hot market (Denver) as a relative newbie and will definitely be using some of your tips! I especially liked your tip about making sure you understand your seller’s time frame and coming up with solutions to make their transition as easy as possible. I can see how that in combination with sending a letter and showing a true desire to meet the seller’s needs could give you a leg up – you can come to the table offering little things that others aren’t simply because they never asked!

    • Brett Lee

      It works. I just won a bid where there were two others and we all had similar prices. We won because the seller appreciated that we were the only ones who asked what they wanted and if we could help. They ended up saying they didn’t want anything.

  4. Christina Dwight

    I deal with A LOT of off-market listings from savvy owners who are able to represent themselves in the transaction. But I never muddy the waters with dual agency.

    If a seller is inexperienced or needs more guidance, I try to insist on being their fiduciary because my shortlist of buyers close quickly, know what they’re doing, and will be amenable to many of the needs of the inexperienced seller.

    To avoid issues with elder abuse, I have earned my SRES (Senior Real Estate Specialist) designation, and I encourage the family members to meet with me, understand the market, and the deal. But I think the best way to keep the “weakest” party protected is to make them the fiduciary in the deal.

    Ultimately, getting the most pairs of eyes on the deal is usually the best thing for a seller who doesn’t do this type of thing every day. That way, the market–not a single investor, will dictate the value of the property. Someone in dire straights might need to cash out much quicker, but if the property is priced right, lots of you investors will be there to snap it up, and the competition means better results for that seller.

    The more a newbie buyer is able to educate herself on valuing property, recognizing deferred maintenance and associated costs, along with her investment parameters; the better her lender relationship and her understanding of the budget, the better I can help her find the perfect property with concentrated market rent analysis and strategies for acheiving the pro forma.

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