In regions where demand exceeds supply, the real estate market can be fiercely competitive. For home purchasers, this means bidding wars in which multiple buyers vie to acquire the same piece of property. In a bidding war, you want a winning bid, which means you need strategy, preparation — and sometimes even creativity — to outshine the competition and entice a seller, without overextending your finances.
That is why this guide will cover practical tips to help homebuyers win bidding wars and buy your dream home in spite of the competitive market.
A bidding war happens when two or more buyers place competing offers on a property, raising the price, and often includes additional terms to make the offer sweeter. These situations work to the sellers’ advantage, as they receive better offers and buyers are compelled to act fast and swiftly.
The secret to winning a bidding war is to hit that sweet spot between putting in a competitive offer and growing too old for your own good.
A mortgage pre-approval demonstrates that you are a serious buyer who has the financial means to close the deal. It also provides you an understanding of your budget as you won’t overextend yourself during a bidding war.
Tip: Before starting your house hunt, get a pre-approval letter with a lender. One letter to include with your offer to give you an edge.
A competent real estate agent can be instrumental during a bidding war. By this stage, experienced agents know local markets inside and out and can advise you on how to submit a competitive offer.
Tip: Because buyers are coming in from all over, choose an agent who knows the market and has a proven track record of success in competitive situations.
In a seller’s market, waiting means losing out on a property. If you come across a home that fits your checklist, be prepared to jump at the chance to submit an offer. Sellers might be more tempted to entertain buyers that demonstrate excitement and preparedness.
Tip: Be ready to make decisions quickly but be sure not to jump into a bid without examining both your budget and the true value of a property.
In a competitive market, lowball offers have minimal chance of success. Instead, make a strong initial offer that’s in line with the property’s market value, yet allows some negotiating room.
Advice: Investigate similar properties in your area to settle on an equitable and competitive offer.
An escalation clause will automatically raise your offer by a specified increment if another buyer comes in with a higher offer, up to a set limit. It just lets you stay competitive without overcommitting.
Tip: Talk it over with your agent to see if an escalation clause is right for you, and agree on a comfortable maximum price.
The earnest money deposit (EMD) signals the good faith to show your commitment to the purchase. An increased EMD can demonstrate to the seller that you are invested in the transaction.
Tip: You may include a higher deposit as part of your offer; however, make sure you understand the circumstances under which the EMD is refundable.
Contingencies are requirements that must be met for the sale to go through — home inspections or approval of financing, for example. Contingencies work to protect buyers — but too many can make your offer less attractive.
Tip: Avoid contingencies unless you absolutely must have them and think about pre-inspection agreements or waiving minor conditions to give your offer an edge.
Personalizing your offer can help it stand out in a competitive environment. Writing the seller a heartfelt letter creates an emotional connection and greatly increases the chances of your offer being chosen.
Tip: Explain what you like about the auction property and how you would use it but don’t go overboard with the sentimentality or divulge too much about yourself.
Sellers generally appreciate flexibility when it comes to closing timelines, particularly if a seller has his or her own move to consider. Agreeing to their desired closing date can help you beat out other buyers.
Tip: Get with your agent to understand the seller’s timeline and plan your offer accordingly.
Although the temptation to win a bidding war can be strong, it’s important not to exceed your budget. So while homeownership can save thousands over the longer term, paying too much for a property can negate some of its benefits, stretching finances longer after the purchase.
Tip: Set a strict budget before venturing into a bidding war and remain faithful to it, even if it requires walking away.
Not every bidding war is worth winning, and not at any escalating price if it takes the property beyond its worth — or yours. Knowing when to walk away can help you avoid a decision you’ll regret later.
Tip: Mute the emotional impact of the purchase and consider the long-term financial implications.
Because they do not stand on the uncertain ground of financing, cash offers are much more exciting to sellers. Making a cash offer can cut a bidding war in half — if you can afford it.
Tip: If a full cash offer isn’t in the cards, you can potentially make your offer more competitive by increasing your down payment.
As sellers often prefer buyers that have local lenders, they may close faster and know the area’s real estate market better.
Tip: Pick a lender with a track record of smooth, on-time closings to give the seller peace of mind.
Every seller is different; some want a higher price, others a quick sale, others specific terms. Knowing what matters to them will allow you to adapt your offer to their needs.
Tip: Have your agent talk to the seller’s agent to find out what the seller most cares about.
With bidding wars commonplace in hot markets, the sale price can end up higher than the property’s appraised value, resulting in what is known as an appraisal gap. If you need to, be ready to make up the difference between the appraised and sale price.
Tip: Budget for, and offer terms to cover, potential appraisal gaps.
WIth so much competition in today’s real estate market, winning a bidding war means preparation, market knowledge, and the willingness to be different. You can maximize your chances of landing your dream home by being pre-approved for a mortgage, making a compelling first offer and knowing what’s important to the seller.
Just keep in mind that winning a bidding war is a thrill, but staying within your means and concentrating on your long-term financial outlook is the way to go. With a bit of know-how, you can take on the hurdles of a cut-throat market and come out on top.
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