The real estate market has recovered tremendously since the economic crash of 2008. For commercial real estate investors, competing for properties often leads to bidding wars, with offers and clauses being thrown around left and right. Real estate bidding wars can often become very heated, and the very nature of the process can result in investors committing to financial obligations that cannot be covered, just for the sake of “winning.” Instead of losing your cool, here are some tips on how to deal with real estate bidding wars.
Dispassionate bidding is the key
The very nature of bidding on real estate can get people worked up for the sweet taste of victory, but there is a point where real estate takes a back seat to the idea of winning – especially when pride is on the line. Unfortunately, giving into these highly charged emotions can make real estate investors spend more on a property than is financially logical, which leaves the seller laughing all the way to the bank, while the buyer has less of a profit margin to work with. Add into that the cost of financing the property and renovation, and “winning” that property can negatively affect finances. The thrill of beating out competitors over real estate can be a Pyrrhic victory, at best, and it is best to bid with hard numbers, instead of emotions.
When purchasing real estate, investors review their own finances, similar properties in the area, and run all of the numbers to arrive at an offer. Bidding wars can often muddle all of that, especially if the real estate is in a tight market. Give yourself a bidding limit and stick to it. There is no reason to blow your budget for the sake of having something that will most likely need more money put into it after the sale is finalized.
There are always other properties
Real estate investors know that while there are good properties and bad properties, there is no “perfect” property that can be purchased at any price and result in all of the revenue you will ever need. However, once a bidding war starts, rational thinking goes by the wayside, and real estate investors buy into the notion of property scarcity. There are always other properties for sale. It may take a little research, but there are still lots of properties out there that will yield very profitable returns. This one property that everyone is bidding on is not the last piece of real estate in the world.
The right to back out
When looking at real estate that could potentially result in a bidding war, it is wise to put forth the condition that you can back out of the agreement if the appraisal or home inspection yield unsatisfactory results. No one wants to come out of a bidding war to discover they are stuck with a money pit.
Know when to walk away
Real estate bidding wars can get very tense, and no one can predict if a seller will go for a high offer or a lower one that’s all in cash. Some people do not like competitive arenas, and others really hate experiencing buyer’s remorse. Walking away from a real estate bidding war does not mean you are giving up – it simply means you know how to handle finances rationally, and are willing to let the others fight it out while you find a better property to buy.