Managing the 2009 Bidding Wars

 
Lately we have been seeing bidding wars for real estate.  Some have fetched more than 25 percent over the asking price.

No, I’m not lost in some sort of 2006 time warp. The reality is that, with so many REO or short sale properties on the market, prices are being set extremely low to entice buyers…and it seems to have worked. So how do you handle all of these offers?

About eight months ago, PAR released a standard form to handle bidding wars, called the Price Escalation Addendum (PEA). It had been created in reaction to hot market bidding wars and many laughed at the timing of its release last fall. We told them it could also be used in a down market. I guess we were right.

Essentially, the form allows buyers to show that they are willing to beat any other offer on the property by a certain number of dollars, up to a stated purchase price cap.

For example, Buyer #1 might make an original offer of $200,000 for a property, but would be willing to beat any offer by $1,000 up to a cap of $220,000.  In this case, if Buyer #2 has offered $215,000, Buyer #1 will buy the property for $216,000.

The PEA also allows buyers to state whether they are willing to waive the mortgage contingency to make their offer more competitive and where any additional money will come from if the purchase price is increased through a bidding war. If buyers want to have an appraisal if the purchase price is increased, they can ask for that too.

For some of you, a bidding war won’t happen until the market heats up again. Others will find themselves reaching for this form tomorrow. Either way, isn’t it nice to know it’s there?

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Tags: Addendum, Escalation, forms, price

This entry was posted on Wednesday, May 6th, 2009 at 1:51 pm and is filed under Standard Forms. You can follow any responses to this entry through the RSS 2.0 feed.