Getting outbid over 100k over asking in Denver

[Kim Gallo]

Is this real estate frenzy going to end anytime soon? Have heard multiple buyers being outbid by at least 50-100k OVER asking in the Denver market. What's your advice to a buyer in this market? 

[Steve K.]

An agent in my office just sold a property in Boulder that sold for $700k OVER ASK! It's a tough market for sure. Here are some good strategies for landing a deal:

1. Go direct to sellers. Prospect for leads by pulling a list of property owners and calling or texting them directly to see if they're willing to sell, send out "sincere request letters" in a direct mail marketing campaign, advertise, etc. Off-market deals aren't always better, but by going directly to sellers you definitely have a better chance of avoiding a competitive bidding situation which drives the price up.

2. Be first. Many times the first offer is the best offer, at least in the seller's mind, and often wins. However, see the property first. Listing agents will caution sellers not to accept offers from buyers that haven't seen the property, as they'll be more likely to bail and are often just spamming offers to see what sticks. 

3. Be a cash buyer. If you don't have the cash, like Matt said there are programs available that enable you to have many of the advantages of a true cash buyer. Submit with proof of funds. 

4. If cash or same-as-cash programs aren't an option, always submit with a prequalification letter from a lender, and having your lender actually call the listing agent to verify that you will be able to close the deal is a nice touch too.  

5. Make your offers as "clean" as possible. Waive any contingencies that you can such as inspection and appraisal, have a quick timeframe to close, check the "specific performance" box saying the seller can sue you if you fail to close (normally only applies to sellers), offer to pay title and closing costs, etc. The purchase and sale contract is made up of options that favor either the buyer or the seller. Selecting as many as possible (within your ability and comfort level of course) that favor the seller will make your offer more attractive even if the offer amount may be lower than others.  

6. Find out what the seller is looking for other than price and offer that. One thing I'm seeing a lot of recently is sellers who need to find a replacement property. Being flexible on closing date or offering a lease back option might make your offer more attractive than a higher price offer to those sellers. That's just one example, often times seller's have something they need other than price. Find out what it is and use it. 

7. Loosen up your buying criteria. I'm seeing less competition on properties with a value-add component/issues as the majority of buyers in the Denver market right now seem to be homebuyers moving in from other markets and they're shopping for move-in ready. Properties with warts on them aren't getting as much attention and have much longer days on market. 

8. Use an escalation clause. These are not as popular as they were a few years ago in the Denver market, but it can be a good tool to have in your toolkit if the seller is willing to accept one. An escalation clause is an addition to the offer that says you will beat any other offer by X amount, up to X amount. For example you could offer $400k, with an escalator that says you'll beat any other offer by $5k, up to $450k. Make sure to add in the clause that the seller must provide evidence of the next highest offer, though, don't take their word for it that they have a high offer or they can just squeeze you for whatever your cap is. Escalations seem to have fallen out of favor recently and most listing agents don't like them anymore as they make things too confusing for sellers, but it's worth asking if you know you'll have competition.  

9. Offer to come out of pocket for the difference if the property doesn't appraise. One issue sellers have with competitive offer situations is the price often gets driven up above what the property will appraise for. Be careful with this however, obviously as an investor you don't want to pay above appraised value and if you need to sell anytime soon you'll probably take a loss. 

10. Make aggressive offers on recently expired listings, properties with more than 40 or so days on market, or that have recently had big price drops.  

11. Use an agent with connections. Agents with a good reputation and a good network of colleagues will be more successful in getting access to listings before they hit the MLS as well as having their offers accepted.

12. Submit with a "Heart Strings" personal cover letter. "We're a young family of five that truly loves your house so much, we promise we'll make the transaction really smooth and be best friends with you after, we're not even going to do an inspection and we'll take great care of your house forever. I think I remember you from grade school I always liked you..." etc. These can actually work if the seller get's a bunch of similar offers and is the sentimental type. Keep it short and sweet though, and as sincere as possible (don't copy and paste what I wrote above, that was satire).