When homebuyer demand is high and the inventory of homes for sale in an area is low, a seller’s market exists. Prices are driven up, homes sell very quickly, and there is often competition among potential buyers for the same home.
A multiple-offer scenario – more than one buyer bidding on a house – can result in a bidding war as each would-be suitor attempts to one-up the other in the eyes of the seller. Bidding wars can be stressful and expensive, and the best way to save yourself from that stress and expense is to stay out of them altogether.
Sometimes, though, it’s unavoidable. You found a home you’ve absolutely fallen in love with, and someone else wants it, too. If you get yourself into that situation, here are five tips to win a bidding war on a home.
Increase your price
Obviously, the easiest way to win a bidding war is to outbid the other bidders. Increasing the price of your offer isn’t always a sure bet, or always necessary, but it certainly can’t hurt.
In a seller’s market, an experienced real estate agent will likely advise you to make a strong offer upfront and will help you arrive at a reasonable dollar figure. However, it’s up to you to know the top end of your budget and stick to the limit you set for yourself on a home purchase.
Bring a pre-approval letter
Getting a mortgage pre-approval from a lender is a good way to show that you’re a serious, qualified buyer. In competitive markets, most homebuyers will be armed with a pre-approval letter, so not having one immediately puts you at a disadvantage.
A pre-approval letter tells the seller you’re in line for mortgage approval, and that the deal is less likely to fall through because of some issue with your financing.
Bring more cash
All-cash offers are attractive to home sellers because they usually ensure a smoother closing process. They also remove the necessity of a financing contingency, which any buyer with a mortgage is going to insist upon.
Even if you can’t swing a cash offer for the whole purchase, you might improve your chances by putting as much money down as you can afford. Letting the seller know that your lender will see you as a lower credit risk because you have a large down payment will signal that your purchase is less likely to be derailed by your bank.
Consider your contingencies
An all-cash offer will take the financing contingency out of the equation, but there are other contingencies that buyers usually use to protect themselves when buying a home.
An appraisal contingency is one you can potentially waive, as long as your lender allows you to bring extra cash to the table to make up for any shortfall between the sales price and the appraised value. You could also waive a home inspection contingency, which carries some risk because there could be defects that wouldn’t allow you to get out of the sales contract.
Be flexible on timing
In fast-moving markets, there can be potential pitfalls when it comes to closing dates and moving days. Sellers may get offers before they have another place to live, or buyers need to sell their current home in order to close the sale on the new one. Negotiating the timing that works for everyone is sometimes necessary.
In a bidding war, a buyer who’s willing to let the home seller set the timeframe – either a quick-close or a delayed move-in date – could be providing a very valuable concession that makes their offer more valuable.
The bottom line
Multiple-offer situations on a house are no fun for homebuyers, so it’s usually best to avoid them. But if you find yourself in a bidding war for a house, there are ways to improve your chances of winning.