The buyer’s strategy for a 5 Day Method sale is to be the first to arrive at the price you think the home is worth, without paying more.
- Decide what you think this home is worth.
- Decide what you are willing to pay for it. (This could be the same, more, or less than you think it’s worth).
- Figure out how to be the first to bid what you think this home is worth without offering more than you have to pay.
Example:
Let’s say you’ve responded to an ad for a home selling for $99,500 or best offer.
You’ve looked at enough homes to know this is as nice as the others that have just come on the market for $125,000. This home is as appealing as those that have been on the market for six months with a price dropped to $115,000.
You know any price under $110,000 is a steal and that a price between $110,000 and $115,000 is a good deal. You figure the seller will get many bids under $99,500, but you can see that there are too many buyers for that to be the final high bid. This home will probably sell for somewhere between $99,500 and $115,000. It could sell for more if someone really wants this particular home.
You inspect the home. You are ready to bid. You want this home if you can get it at a good price. What should you bid? Your initial bid should be $110,500.
A bid over the starting price tells the others you are a serious buyer.
Your bid announces to other buyers that no one is going to “steal” this home from you. It scares off the other buyers and simplifies the final bidding. Anyone else who wants this home is going to have to fight you for it. You should call the seller before the inspection process is over to find out what the highest bid is. If the high bid is greater than yours but less than you are prepared to pay for the home, you should raise your bid so you will be the first one called in the Round-Robin. You already know any bid under $115,000 is a good deal for the home. If you jump to a higher level early, you will save yourself a lot of time and aggravation later.
Do not stop at $115,000. Your top bid should be slightly above $115,000, perhaps as high as $117,000. ($2000, on a 15 year FHA loan at 5%, increases your down payment by $120.00, and your monthly payment by under $16.00). When the bidding approaches $115,000 you should jump over it to your maximum bid. Never announce to the seller and other other bidders that you are approaching your maximum. When you are done, just stop!