Finding the perfect house after months of house hunting is elating. However, there may be other people who are eyeing the same home and that is how you will find yourself in a bidding war. Read on to learn several expert tips on how to win a bidding war in real estate.
How to Win a Bidding War in Real Estate
It is frustrating and tedious but quitting means losing. If you want to live in that house, you have to roll your sleeves up and fight for it. Nevertheless, it isn’t a matter of taking arms and weapons and going to war. You have to be smart when strategizing to win the bidding war.
If you find yourself in this situation, and that’s where we are currently, here are the strategies to employ:
Pay Cash
Cash is king. It might be cliché, but it will always be true. In a seller’s market, many homes for sale wind up in bidding wars. However, sellers will always prioritize buyers who are paying in cash. They won’t have to worry about financing options falling through. Thus, if you really like the house and you can afford to pay the whole amount at once then go for it.
Get a Pre-Approved
If you cannot afford a cash purchase, you need to get a mortgage pre-approval before house hunting. If you want to win a bidding war, good luck if you’re not pre-approved. By the time you apply for a mortgage preapproval and get the green light to proceed with the offer the home will be long gone. However, when you have been pre-approved you can act fast and lockdown on the house.
Understand the Market
Market information helps you get an idea of the average price of the available houses. By bidding close to what the sellers are looking for you increase your chance of winning the bid. A good understanding of the market ensures you’ll make a move as soon as the home you have your eyes on goes up for sale.
Having market knowledge will also help you to make a more educated offer on the property. There is no better way to keep in tune with the market than having a great Realtor. Just because someone prices a home at a certain dollar amount does not mean that it is priced right. The list price that the seller chooses can be anything from too low, too high, or priced at fair market value. Knowing which category the home you’re interested in falls into will ultimately help you to be confident that you don’t overpay for the property.
Make the First Move
Experienced agents know that the first offer is most often the best offer. If you want to win a bidding war you should make the first move. As long as the price is not exaggerated you should offer full price or close to it and be ready to follow through if the other bids come in lower. It shows the seller you are serious and since they’ll also be in a hurry to settle your offer will be accepted quickly.
Strong Earnest Money Deposit
When you are making an offer, you’ll have to include a refundable deposit. It should be around 1% of the purchase price. However, you don’t have to settle for that. Go big! Can you do 5%? 10% to 20%? This will emphasize how serious you are about the purchase. If you win the bid that money will be a part of the down payment or closing costs. If not, you will be refunded hence you should be confident when making the deposit.
Remove Contingencies
This one is huge! If you are in a bidding war, contingencies in your offer will get you moved to the bottom of the list. Contingencies allow you to back out of the contract in some situations like having difficulties in securing financing. They also apply when the amount quoted during the appraisal is lower than the contract amount or if the home inspection report highlights major flaws.
Unless there are sanitation, safety, or health issues you should remove any contingencies that you can. Speak to your awesome Realtor and see what he thinks. According to statistics, a waiver of contingencies gives many buyers a better chance of winning bidding wars. If you have confirmed the house is indeed what you want there is no reason why you shouldn’t waive the contingencies.
Make It Personal
Appealing to the seller’s emotions can help you win! Write a personal email or a letter. Also, you can call them and arrange for a face-to-face meeting if permitted to do so. The seller will be emotional about the transaction because of the memories created there.
When you show them who you are, your family, or even pets they connect with you especially if their lifestyle matches yours. Spending time with them also allows them to know you better. At the end of the meeting, they will have decided on whether to sell to you or not based on the impression you make. It can come with other perks as well. Thus, make the move. The worst that can happen is getting a no, but you won’t be haunted by “what ifs” if you lose out.
Include an Escalation Clause
Not all agents know about this one. You can have an escalation clause so that there is room to revise your quote if someone else offers to pay more. However, tread carefully because it is easy to get carried away. Have a cap and ensure you have the money to match your bid. Once you make the offer there is no going back since it is legally binding.
Be Flexible
Find a way to make the seller’s life easy especially immediately after the sale. If they haven’t found a place yet or there are a few loose ends they wish to tie before moving, you can accommodate that. Let them know that when you are making the bid. Moving isn’t easy and it takes time. When the seller knows he/she doesn’t have to pack and be gone the moment you sign on the dotted line you have a better chance of winning the bid.
