Alt-tag: Photo of a real estate agent shaking hands with a couple next to a For Sale sign congratulating them for winning a bidding war on a house.
If you want to purchase a home, it’s not enough to be a responsible, well-prepared homebuyer. This is especially true when it comes to more competitive markets. In today’s competitive housing market, buyers must be very strategic and act quickly. More often than not, sales end up with bidding wars. And if you want to ensure you finish as a winner, you must thoroughly prepare. To help you do just that, we’ve consulted an experienced real estate broker and prepared a detailed guide for winning a bidding war on a house.
How to make sure you end up winning a bidding war on a house?
Wouldn’t it be nice if the home buying process could simply end when you decide you’ve found a perfect property? Although it’s possible, you are more likely to end up in a bidding war in today’s market. When supply is low, and demand is high, like in a seller’s market, bidders typically need to go above and beyond to make their offer stand out from the crowd.
Caption: Even though there’s no way to guarantee you’ll end up winning a bidding war on a house, there are ways to increase your chances and ensure you get some advantage.
Alt-tag: Two people talking to a real estate agent in front of a house that’s for sale.
So even if you find a house you’ve fallen in love with, you’ll have to hold off on hiring movers and organizing your long distance move for a while. Before you can move to that lovely house and settle down with ease, you need to make sure you are the one who actually buys it. Even though there isn’t a foolproof formula that will guarantee you’ll succeed, the following tips and advice will help you significantly increase your chances of winning.
#1 Get pre-approved for a mortgage
You will likely lose the bidding war before it even begins if you find a home you want but cannot put together an offer immediately. The seller will feel more comfortable accepting your offer if they know you’ve already been pre-approved for the loan you’re proposing to them. It demonstrates your seriousness to the seller so make sure to sort out your financing.
Knowing the maximum loan amount allows you to plan accordingly. For instance, the bidding wars can drive the purchase price above the maximum loan amount. In that case, you’ll have to pay the remaining difference. Do keep in mind that preapproval is different than prequalification. Prequalification is simply a discussion about getting a mortgage, while preapproval means you’ll be getting an official, written document.
#2 Understand what the seller wants
It’s simple to think that the highest bidder will automatically win, yet every seller has unique needs. It’s possible that some sellers are only interested in the greatest possible price, while others have other requirements. For instance, someone may favor a buyer who can close quickly or is flexible regarding tenancy. Remember – a well-thought-out proposal has a better chance of success than one made in the dark.
#3 Be prepared to up the offer
If you’re dead-set on purchasing a particular home, your best option is to bid more money. However, raising your offer doesn’t have to mean shelling out another $10,000 or more. This all depends on the home’s price, location, and level of competition. But a price difference of a few thousand dollars can mean the difference between getting a house and missing out.
Caption: If you’re considering making a higher offer, make sure you can afford it first.
Alt-tag: A person holding a jar filled with coins labeled with savings.
Just because you’re willing to pay more doesn’t imply the bank is. So keep that in mind if you decide to make a higher offer. The home’s appraised value will be the upper limit on how much you can borrow for your mortgage. If the seller accepts your new offer, you may have to pay for the difference yourself.
#4 Up your down payment
Increasing your down payment commitment can be a game changer if you’re competing with other purchasers. If a bidding war drives up the price beyond what the property is worth, a larger down payment will reduce the amount of financing needed from the lender.
However, a promise to increase your down payment over the phone is not as strong as hard evidence to support your claim. You can demonstrate both your willingness and ability to make a larger down payment by providing evidence such as pay stubs, tax returns, and your 401(k) amount.
#5 Consider making a cash payment
Although a bank or other lending institution is a safe bet for financing a house purchase, the buyer and seller can benefit from paying in cash. As the buyer’s financing may fall through, a cash closing speeds up the process and reduces the seller’s risk.
Consider delayed financing if you have the cash on hand but aren’t ready to part with it completely. This way, you can buy a house with cash and get a mortgage within six months. After finalizing everything, you’ll have a mortgage on your new home. Not to mention the money you put down, less any closing expenses and fees.
#6 Incorporate an escalation clause
Including an escalation clause can be a game-changer and your ticket to winning a bidding war on a house. Basically, the escalation clause means you’re willing to offer an extra X amount of money in case another buyer matches your offer. To be more exact, it states that you must increase your bid by a certain amount for every new bid, up to a maximum.
Caption: Ask your real estate broker to help you draw up a fair escalation clause.
Alt-tag: Real estate agent showing a contract to her clients.
However, there is one drawback of adding an escalation clause. It might make you seem more keen or desperate to get that property that is really not in your best interest. So the best way to go is to discuss your plan and financial constraints with your real estate broker to create a fair escalation clause.
Good luck winning a bidding war on a house!
Successfully navigating a bidding battle for the home of your dreams requires first knowing what to expect from the process. The best way to ensure you end up winning a bidding war on a house is to be financially ready, make competitive offers, and be open to accepting counteroffers. It goes without saying that the key to a successful home-buying process is to have a reliable ally on your side. That’s why, before you even start looking for homes, make sure to reach out to a knowledgeable real estate broker who’ll provide you with expert help and advice along the way. We wish you the best of luck!
To ensure you are the one leaving the sale with the keys to that perfect home, here is a thorough guide to winning a bidding war on a house.