Bidding war tip: Dealing with buyers who get cold feet

Selling a home in today’s market is pretty comfortable. If the house is nicely prepared for sale and priced fairly, bidding wars are very common. In fact, you may get multiple offers in the first week that it’s on the market, driving the price significantly higher. As a seller, it is hard not to be excited about a quick sale at a very high price. It’s exciting until the winning buyer gets cold feet a week or two later and backs out of the deal. Now you’ve got to start all over again, and it is not uncommon for the second time on the market to not turn out as well as the first.

Buyers get caught up in the excitement of competition for a new listing

Warming feet on the radiatorReal estate deals are as much, or more, about emotion and psychology as they are about market data. The enthusiasm for a home is at its peak when it first comes on the market. This is always when it gets the most clicks online and the most in-person tours. More online and in-person views increase the chance of an offer. As time on the market passes, the online and in-person visits slow down.

An enthusiastic buyer desperate to get a home may make quick and aggressive decisions to win against other bidders right after it comes on the market. If a buyer has  to raise their bid by $25k, $50k or $100k (we’ve seen even higher), of course they are going to think twice about it after they win the bid. This is a natural emotion in a competitive situation. Your job as seller is to try and pick the right buyer who isn’t going to let buyer’s remorse get in the way of the deal.

Picking the properly motivated buyer

You may receive a number of great offers with high prices, strong down payments and few contingencies. Your first reaction will be “let’s pick the highest offer,” However, you and your agent should discuss the top offers and gauge your confidence about which party is more likely to close the deal.

Ask why they are buying, and ask about their history of bidding on other homes. A buyer who has been in the market for 6 months and has gotten outbid 8 times is way more likely to follow through than one who just started their home search and is making an aggressive offer on their first bid. Same thing can be said for buyers who are working against a job relocation or school deadline.

It may be prudent to accept a slightly lower offer to go with a buyer who is properly motivated.

Coming back on the market often leads to worse results

Despite your best intentions as a seller, sometimes the buyer who won your bidding war is going to back out of the deal. Unfortunately you can’t control their emotions or decision-making. What is your next step? Well, every seller that I’ve ever worked with will look at the results of the first round of bidding and want to up their price accordingly. You originally listed the home for $450,000 and got 8 competing bids that pushed the price to $500k. When you bring it back on the market, you should just re-list it at $500k, right? In most cases, the answer is no.

If you are lucky, some of your original bidders are still around and you can slot one of them in to the deal without re-listing. However, if you have to put it back on the market, you should exercise great caution about trying to raise the price. The enthusiasm for your listing and ferocity of competition the second time around is not going to be as strong as when you started. Buyers may still want your house, but the failed deal puts doubt in their mind about how high they want to bid. Even if your buyer backed out for no logical reason, it introduces doubt with other buyers. Put yourself in the position of other buyers. If the first buyer backed out, of course you are going to ask yourself why. Even if the explanation says nothing about the house, I can pretty much guarantee that you are not going to want to bid quite as high as the first round.

If your initial rounds of bids went bezerk and upped the price by $100k, by all means, you have some flexibility to bump the price higher. However, if the initial bids weren’t that aggressive, stick with your original listing price and try to drum up a second round of enthusiasm.

It is also worth mentioning that you should not get over-confident with your initial buyer. If they have an inspection contingency and are trying to negotiate a $5000 repair item, don’t dig your heels in. Try and negotiate a win-win deal. By being too inflexible on your $5000 negotiation, you may lose $15,000 by having to bring it back on the market a second time. Unfortunately we’ve see this happen countless times.

Don’t let greed get the best of you

I have never met a seller who didn’t want to take the highest offer. Of course you want the most money out of the deal. Everyone does. That said, don’t lose sight of the consequences of your decisions.

Work with your agent to pick the best offer who is also most motivated to close. Be reasonable and flexible during any inspection negotiations and be professional and accommodating to your buyers at all times. Usually bringing a home back on the market a second time will lead to poorer results, so don’t let small arguments with your first buyer get in the way of an otherwise really strong offer.