Top 10 Ways to Win a Bidding War
1. Know Your Numbers. One of the most important pieces in the process of buying a home for your primary residence or for investment is knowing how much you can spend, particularly if you enter a bidding war. If you end up bidding against another buyer make sure to stay within the amount you’re preapproved for by the bank or mortgage company or have cash on hand to use.
The list price of a property is becoming less significant as buyers are shifting their focus to the monthly carrying costs instead of the full amount. People are willing to spend up to 20% more for a home because their monthly payments only go up marginally. This can be a huge problem (especially for investors). People are overlooking the extra money they are paying over the asking price and the fact the property may not appraise for the full sale amount. Forcing the buyer to come up with even more cash at closing. So, before you leap into a bidding war thinking you’re going to buy the house no matter what, know your numbers and do your best to keep your emotions out of the buying process.
2. Research the Area. Buying a house is the largest financial decision most people will ever make in their lifetime so spending time to research the neighborhood around your property is critical.
There is so much emphasis on inspections, repair costs and interest rates that sometimes we overlook the other really important factor when buying a home, location. Research time should be spent checking out local schools, transportation, parks, crime rates, medical offices, family activities, seniors programs, daycares and even future housing developments. Before you make an offer be sure you know what you are getting yourself into and if it’s worth getting more competitive in a multiple offer situation.
3. Timing is Everything. Try to get into new properties as soon as possible. Writing the first offer on a property is helpful for several reasons but it all comes down to time. The earlier you submit your offer the more time you will have to complete a thorough evaluation. Giving you a more precise figure for any updates or rehab that will be needed. Having a precise repair cost will keep you from bidding too much if you find yourself in a bidding war.
4. Working With a Real Estate Agent. If you are using an agent to buy a property make sure you find one that is a local expert and make sure they fully understand your wants, needs and limitations. Your job as a buyer is not to seal the deal, it’s your agent’s job and they need to know your price limit if you get into a bidding situation.
5. Stick to Your budget. Once you’ve set your budget, determine exactly how much of it you’re willing to spend if you end up in a bidding war and stick with it. If you’re a first-time buyer and are spurred on by stories of friends who bought five years ago and just made a ton of money selling their home, don’t speculate that you’ll be as lucky in a few years.
6. Make Smart Offers. Surprisingly, not every seller accepts an offer because it’s the largest offer received. With up to 30% of offers falling out of escrow for a laundry list of reasons the educated seller will sometimes accept an offer with better terms than an offer that is promising more money.
A smart offer with preapproved financing, especially in a multiple-offer scenario, shows the seller that you are serious. Offers that are contingent on financing just don’t fly when there are other offers on the table. While certain contingencies often get waived in a bidding war, only wave the house inspection if you are going to rehab the property and have accounted for that in your budget.
7. Be Flexible. Winning a bidding war and getting an offer accepted might be as easy as agreeing to the seller’s conditions like closing dates, buying a property “as is”, or even offering to move the closing date up if it works better for the seller. If the seller has already bought another property and needs to move on, agreeing to make the transition as easy as possible could mean winning the bidding war.
Accepting a property “as is” and limiting conditions such as requesting that missing ceiling tiles in the basement be replaced or the broken bedroom window be fixed might work in your favor too. If your realtor is privy to any information about the seller’s situation and if you can be flexible in any way, take advantage of the opportunity and try to stand out from the others.
8. Offer a Larger Deposit. A significant deposit can show you mean business. A deposit should always be presented as a certified check. Put as much as you can afford down, it goes towards your down payment anyway if you get the property. A smart offer with a large deposit could mean winning the deal over another buyer.
9. Make it Personal. Try writing the seller a letter explaining who you are and why you want their home so much. Buying and selling a home is an emotional time for everyone especially if a seller has lived in that home and raised their family there. It can’t hurt to try right?
10. It’s OK to Walk Away. Bidding wars can be ugly. With realtors who strategically set the price of a home below market value to instigate a multiple offer situation, it really is about standing firm and not giving into the pressure of going above your budget.
Know your limits, do your research and don’t overextend yourself because it will just take you that much longer to see a return on your investment. Buying a home should not be a competition. It’s not about winning the bidding war but about finding a great place to build memories and equity.