Making an offer in a bidding war scenario (ie multiple competing offers) involves many moving parts (closing date, conditions etc), but in the end (with all things being equal) it usually comes down to the number. Coming up with the right number again involves several factors, but once we determine what our number is I always tell my clients the same thing – go with your best and get the deal done, and keep it simple – like the elegant perfection of the margherita pizza.
When making offers I find that buyers often want to go the route of “holding a little something back”. I certainly understand where they are coming from (maybe they will accept $740k instead of our top number of $750k), but in reality this practice backfires more often than it works. Would Roger Federer would hold anything back in the 5th set at Wimbledon? Did Michael Jordan hold anything back in the NBA Finals? Of course not, and neither should you!
A recent offer night I was involved in underscores this point. My clients were making an offer on an entry level semi-detached in the Coxwell and Danforth area. They decided $652k was their top number and I agreed it was a good number. There were 5 other offers and I knew this would give us a very good chance of getting the house. However, much to my dismay they insisted on starting at $642k, “just in case”. I went into the listing brokerage’s office and presented our offer, and I sensed we were right in the mix. I went back to my car and waited, mindlessly surfing hockeydb for stats and fielding a couple of calls from my anxious clients. All in a night’s work. Finally I got a text from the listing agent (not even a call!) saying thanks but no thanks and they had accepted a higher offer – for $648k!!! As they say on NFL Sunday – come on man!! Now you may ask – how could we not be given a chance to improve, especially considering how close we were? All I can say is it happens, and sometimes when a listing agent says they are going to simply take the best offer they mean it.
The above example shows the first problem with holding money back.
Example 1 – You Don’t Get A Chance To Improve
If we had just put down $652K to start in the example above we would have got the house. Incidentally those buyers are still looking…
Example 2 – Another Buyer Makes A Heroic Leap
Let’s stay with the example from above to illustrate this point, only this time the listing agent gives us a chance to improve. We go in with $642k and another buyer is at $638k. We both get the chance to improve and we come up to our top line of $652k, but the other buyer calls in a loan from their parents and blackmails their boss and comes up a staggering $20k to $658k. Now we are beat, but had we started at $652k it would have been $14k higher than the other offer and likely enough to end things in one shot.
Example 3 – Emotions Kick In and You Go Higher Than Expected
Sometimes in the heat of an offer night a buyer’s emotions take over and they ultimately decide to go higher than their previous top number. Once the process starts the thought of “I can’t bear for anybody else to get this house” can prevail, and we know where things go from there. Taking the same scenario from example 2 we go in with $642k and the other buyer starts at $638k. However this time, riding the emotional surge, we make the massive $20k leap and buy the house for $662k. Again if we had started stronger we could have ended the negotiation quicker and for $10k cheaper.
We must always remember that at the end of the day our objective is to buy a house. If you get caught up trying to save $10k that is payable over a 25 year mortgage you are missing the bigger picture. If a deal is what you really want you are better off trying the discount meat bin at your local supermarket.