What to Know Before Entering a Property Bidding War

by / Friday, 02 February 2018 / Published in Financing Blog

You’re trying to buy into a hot real estate market. There are lots of properties for sale, but it seems that they always sell for more than the listed price. As an investor, you want the best deal, so how will you navigate this environment? Oftentimes you’ll find a good buy and then get caught up in a property bidding war. The result of this heated auction can either be a purchase or a return to the listings. Much of your success depends on how much you know about these types of auctions.

First, it’s good to define exactly what “success” means in this context. Success isn’t a matter of buying at all odds. It isn’t closing a deal that you purchased way over market value in an area with an uncertain future. Sometimes success means walking away from a heated price war. It’s better not to buy into the “scarcity” mentality and feel like you have to win by outbidding everyone else. If you don’t win the deal, there will be plenty of other investment opportunities to look into. So instead of letting emotions cloud your judgement, be patient while navigating your options.

Pros know about some of the corrupt behavior that characterizes some of these real estate auctions. Sometimes in a property bidding war, illegitimate “bidders” are hired to drive the end price up. Because of the prevalence of this practice, you should request a proof of legitimacy of the offers. This protects you from getting bumped up to a higher price by this corrupt practice. Another measure you should take is setting an escalation cap. This involves declaring the maximum you would pay for the property, and this amount is kept confidential from other bidders. Finally, you should have a contingency clause in place that gives you the power to back out in case of an unfavorable home inspection. Some new investors have minimized the importance of an inspection, casting it off because of the additional cost. Savvy real estate tycoons know the value of the inspection to calculate a renovation budget and for negotiating power.

Be smart and choose your moves wisely if you get caught in a property bidding war. Real estate purchases are big transactions that offer a fair amount of risk. The perils of it shouldn’t scare you away though. When chosen wisely, the purchase of a rental or investment property can be the start of a steady income stream that, if managed well, can last a lifetime.