Posted
January 23, 2024

Winning Strategies For Investors In Bidding Wars

Investing

A short couple of years ago during the great pandemic boom, housing prices, inventory and everything else that stemmed from the real estate market as a whole was done differently. This was the case for a multitude of reasons, but the primary reason was the surge in activity and the time in which it happened. As a result, there were plenty of unprecedented activities taking place, including bidding wars.

While we are a few years clear of the pandemic boom and the housing market has been in a state of recovery, bidding wars left an impression on the market and lots of room for investors (and homebuyers) to learn. Let's explore exactly what a bidding war is, how they are triggered, and how investors can strategize for success if bidding wars break out in 2024.

What Is A Bidding War?

A bidding war is precisely what it sounds like: the battle between contenders via their offers for an accepted contract. This is most prevalent in an extreme multi offer situation.

How Are Bidding Wars Triggered?

As stated before, while multi-offer situations are not necessarily the root of bidding wars, they are a supporting reason in most cases. Here are a few market behaviors that trigger a bidding war:

Low Housing Inventory

Low housing inventory can trigger a bidding war for obvious reasons: there are more buyers than sellers. There is the desire to have the available homes and offer more favorable terms than everyone else.

Desirable Location

One of the biggest values in real estate is location. Those that are located in prime locations present the opportunity to have more favorable returns, meaning they will have more value, and serious investors will recognize how the asset can make a difference in their portfolio.

Competitive Pricing

Competitive pricing has become somewhat of a buzzword in the past years; however, the reality is it is just that, a price point that stands the chance to compete in the market. Imagine if you were shopping in a local store for a pair of shoes. Similar shoes are available in multiple stores, but one particular store has them for an unbeatable price. Where are you and anyone else who sees value in these shoes likely to go? The best priced place. Well, once other stores understand that they have the available product and an audience, they will benefit in tweaking their prices to become a true market competition.

Interest Rates And Financing Options

This one is more so top of mind because it was possibly the foundation of the great pandemic bidding wars. Low-interest rates and favorable financing options can stimulate buyer demand. When borrowing costs are low, more individuals are inclined to enter the real estate market, potentially intensifying competition for available properties.

Emotional Attachment

Buyers tend to come across homes that can take a hold on them emotionally, and for that reason, they will fight to the end for it, especially if it aligns with their lifestyle aspirations. Emotional attachment can drive individuals to compete more aggressively in a bidding war, leading to higher offers.

How Can Investors Strategize To Win In Bidding Wars?

So now that we understand what a bidding war is and a few things that can trigger them, let's discuss how investors can prepare. Often, individuals will give the catchall of luck, but that can't always be the case. And, if we delve deeper in the definition of luck, it is a preparation meeting opportunity. What does that definition sound like? Strategy. Luck is a strategy. So, by that metric, let's talk strategies for an investor who may find themselves in the midst of a bidding war and can position themselves to be ‘lucky’ enough to increase their odds of an accepted offer.

Before Joining The Bidding War, Conduct Thorough Due Diligence

All battles (and wars) aren't necessarily worth fighting. So before going to war with other interested parties, do a thorough due diligence. Bidding wars tend to be chaotic and everything moves at quite a rapid pace and in the process could hinder proper thinking. However, a bidding war requires focus and research to ensure that your efforts and resources are used effectively.

Factors to consider include the historical performance, potential risks, and the current market context.

Define Clear Financial Limits

Establishing financial boundaries is crucial. Determine the maximum amount you are willing to invest and adhere to this limit. This prevents overstretching resources and ensures a disciplined approach to bidding. Clear financial boundaries provide a realistic perspective and avoid the pitfalls of emotional decision-making.

Leverage Expert Advisors

Arm yourself with a well-versed team who understands your goals, can help you maneuver the market, and knows how to analyze risks. Their insights can provide a nuanced understanding of the investment landscape, helping investors craft a winning strategy. Having a team of experts can be instrumental in navigating complex negotiations and ensuring all legal aspects are considered.

Differentiate Your Offer

This goes back to having a team of experts on your side, especially your real estate agent. Negotiations are an important aspect of strategy. However, it is critical to understand the value of the negotiation. To stand out in a bidding war, craft a compelling and unique offer. Highlight aspects that make your bid distinct, whether it's a faster closing timeline, favorable terms, or additional value-added propositions. The goal is to find out what's important to the seller and determine if there is a way to craft an irresistible offer where everyone has a win.

Knowing how to maneuver the real estate landscape during a bidding war is critical. To begin with, understanding the triggers can help investors organize and approach in an organized manner. Most importantly, understand that patience is mandatory to stay focused.

It's also essential for investors to be aware of local market conditions and factors influencing demand to make informed decisions in real estate transactions. Combining forces with real estate professionals who are aware of the local market can be critical in this process.

National Real Estate Management Group works with an array of investors, in different seasons of their portfolio development. We are equipped to manage the ever-changing market because we stay plugged into market trends and happenings. Contact us and let us help you prepare and execute your next investment.