In Part 1 I tried to brace you for what you can expect from your competition in a bidding war. I know that no one wants to get into a bidding war. However, if you really want to buy a condo in a Seller's Market... being forewarned is being forearmed. Besides, there will come a time, after you've looked at enough properties, that you find a "really good deal". The price seems fair and the condo offers all (or most) of the features you said you "must have". So now you're ready to throw caution to the wind and give it your best shot in the Rough & Tumble.
You know the basics that you need: A pre-approval letter from your lender and, if time permits, it's not a bad idea to hire an inspector for a "pre-inspection" so you can waive the Inspection Contingency. Sellers want a firm deal as fast as they can get one. The inspection contingency is just another reason to say no to your offer.
Here is SECRET WEAPON #1: Consider waiving your inspection contingency upfront, if you suspect a highly competitive bidding war. Since the seller must give you five (5) days to review the Condominium Resale Certificate, you can use this period of time to conduct an inspection of the property. While you will not be able to negotiate any repairs arising from this inspection, you can use it as a Pass/Fail Test for your purchase. If you find a serious problem during the inspection, you can safely exit the deal by objecting to the Resale Certificate within the five days after receipt. You do not need to specify any reason under the Resale Certificate Review.
Here is SECRET WEAPON #2: Consider using an Escalation Clause to automatically increase your offer above your competitors. Since we now know that the Average Sale Price is 3% to 4% above the List Price (see Part 1 of this blog topic), your initial offer should at least be within this range over the asking price. For example, if the List Price is $400,000 the your initial offer should be at least $12,000 to $16,000 over the List Price. Further, if you expect your competitors to be in the range of 10% over List Price, then your Escalation Clause should bring the final price up to $440,000. Usually, your offer increases in increments of $1,000 to $5,000 over the next highest bid, until it reaches its maximum price limit that you set.
ONE MORE NOTE: It you want to shut down the bidding war, you might consider setting your maximum price at an even higher level. Perhaps at 12% to 15% above List Price. This will intimidate other bidders, once they find out. You have two safeguards: 1) The seller must show you the next highest offer that triggered your price escalation, and 2) If you get a severe case of Buyer's Remorse, you can always exit the deal during the Resale Certificate Review. Is this last option ethical? I'm not sure, but I know it is legal.
Seattle Condo Specialist