How to survive a bidding war

Hey tipsters,
I was hoping to get some advice on a duplex I am trying to buy. My wife and I will live in 1 unit and rent the other.

My realtor (moan) indicated that this property will most likely get a lot of pressure. Any tips for how to negotiate in a bidding war?

There is definitely room for bidding above asking and still making the numbers work, but I am worried about my lack of knowledge regarding home purchasing and negotiation.

I do a ton of active negation in my land biz, so I am not afraid of it but am unsure how to not overbid and how to “read the room”. Because of past experiences, I do not have any faith that my realtor is an expert at anything but cashing checks.

@greg-morris it’s a good question to ponder, especially in these times when overbidding is a serious risk that a lot of us have to think about. This kind of thing seems especially difficult when it’s a property you actually plan to live in, because there’s a lot more at stake and emotions can run high.

To the extent that you can manage it, I would try not to get swept away in the excitement and hope of getting “just the right property”. Try to objectively figure out the highest number you can offer and still have the deal make sense, and draw your line there.

This excerpt from Felix Dennis’ book might be appropriate for this conversation:

@greg-morris hey greg, I can speak from the experience I had when buying my own house. We live in a competitive market where nearly every property goes over asking. We had a realtor who was very good (sounds like that wasn’t the case for you), and was in close contact with the sellers agent. He wasnt able to get specific numbers from her, but could get a sense of if other offers were coming in or not. Without this, honestly i dont even know how it would have been possible to know what we should have done. The fact that the sellers agent was actually corresponding with our agent and giving him any info at all sort of indicated to us that they werent getting as many offers as they had hoped for. We also knew that the house needed a lot of work, and that people were likely to be scared off by that. With all these clues, we put in an offer under asking and stood pat. There were times where i wanted to throw out a higher number, but my wife stood strong and said to be patient. We ended up going up only a few thousand bucks but were still under asking, and got the place.

Unfortunately, the moral i got from this was that it is crucial that the agent representing you as the buyer was proactive in reaching out to the sellers agent and getting literally any info at all. At the end of the day, youre still guessing. But getting some clues and trying to piece together a story will help guide your decisions in this process. Are you stuck with this agent? If so, i would really press him or her to reach out and dig up what they can. Anything helps.

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@retipsterseth right on the money. I have my numbers set and I really do not want to be underwater on this thing if I would have to sell it sooner than later for some reason.
Duplexes are somewhat of a rarity in these parts, especially when the supply is lagging like it is that I am expecting a cash buyer to come in and pay way over market for their “investment”.

@rmiller1291 thanks Ryan for the insight. I actually like my agent and in fact he has shown the property to someone else before us and will not represent both parties (which I admire). I’m just averse to using an agent in general due to my experience in the land biz.

So now I am waiting to see if the other party will submit an offer today, and if so I will find another agent so we can put in an offer.

@greg-morris You have more going for you than I think you realize. You are a known entity to the Seller. You are a paying tenant. Why wait for a Broker to get involved? Make him a direct offer if you feel strong that you can come up with and make it. it is to the Seller’s advantage (and yours) to sell it to someone who knows the property.

Work your numbers so they make sense and stop. How much is the outstanding mortgage(s)? how old is it? The equity situation may be thinner or greater than you realize. Do your numbers. Good Luck.

I wanted to update you all on the “bidding war” for the duplex.

Long story short, I ran the numbers and found the highest amount I could offer while realizing an acceptable return and stuck with it. I offered substantially over market because it did make sense with my current situation, but of course someone got emotional and had to have the property at any cost and is currently in negotiations with the owner.

Throughout this process I was (mildly) surprised about a few things.
1st: I dealt with two agents, one had years of experience and owned rental properties, the other had neither. The Realtor with experience was looking out for my best interest and gave me ample warnings of bidding over market value and repairs to consider. My inexperienced Realtor had no clue, gave me zero advise and was sloppy with paperwork. I would have been better off without her.

2nd: Apparently there were many “investors” looking at the property. I ran the numbers many different ways and could not see how anyone could offer much higher than my bid and consider this an investment. I certainly would not be comfortable paying over appraised value for a negative cashflowing property! Should I be surprised? I guess not.

@greg-morris good job on find the experienced broker and working the numbers. It pays to do that.