Editor's Note: This story originally appeared on Point2.
When several buyers make offers on the same house, the resulting bidding war can be daunting, especially for first-time buyers. So, what can you do if you find yourself up against several other buyers all competing for your dream home?
Simply raising your offer price isn’t always the best way to get what you want, or indeed, possible. Fortunately, there are many other things you can do to ensure the seller picks you in the end.
With that in mind, here’s how you can win a house bidding war without blowing your budget.
What Exactly Is a Bidding War?
Bidding wars are most common in areas with high demand and low real estate stock. This is also known as a seller’s market, as the seller holds all the cards, while buyers are often forced to compromise as they attempt to outcompete one another.
A real estate bidding war is typically fast-paced, and rather than the usual back and forth as buyer and seller negotiate the terms, the seller can sit back and wait for the best offer to come along. As a buyer, it’s essential you know how to make your offer the best on the table.
Winning a house bidding war is all about developing a solid strategy from the get-go. Here are a few pointers.
1. Sort Your Financing Out in Advance
Hot markets are fast-paced, and if you haven’t arranged financing before prospecting homes, you’re setting yourself up to fail. So, before you even start looking at homes, get mortgage pre-approval from a trusted lender.
Your choice of lender can also be extremely useful. A trustworthy and well-known lender with local offices is generally far preferable to an obscure online one or a huge bank, both of which could be difficult to communicate with.
2. Find Out What the Seller Wants and Needs
You might be surprised to hear that it’s not always the highest bid that wins a bidding war. In fact, more often than not, the winning offer is the one that gives the seller what they want or need. Essentially, your offer should aim to identify the seller’s problem and fix it for them.
This could take many shapes. For example, the seller may want to sell as fast as possible as they need to relocate for work or medical reasons.
In this case, an offer that promises to reduce the closing time and pay the earnest money deposit within a matter of days will likely win over one offering more money but won’t close for another month.
To make an informed offer, you need to determine what the seller needs most. So, get your real estate agent to contact the listing agent and find out precisely what that is.
3. Be Prepared to Compromise
To win a bidding war, you’ll almost always have to compromise somewhere along the line to make your offer the most attractive on the table. For example, you may choose to waive the home inspection and survey to be able to close the deal faster.
This can be a risky move, so make sure it makes sense to do so. In a modern home, the risk of significant structural faults is relatively low, and they’re typically easy enough to see with a bit of know-how.
One way to make this work is to plan your initial visit to the home with someone who has a lot of home maintenance experience or even an inspector.
Another example would be offering extra post-sale occupancy time if it’s something the seller would appreciate.
4. Offer to Purchase the Home ‘As-Is’
If you offer to buy the house “as-is,” it’s likely to make the seller very happy. That doesn’t mean waiving the inspection or buying it unseen. It means that if you decide to buy the home, the seller won’t be required to make repairs or carry out any renovations.
5. Offer a Generous Earnest Money Deposit
By offering a good amount as your earnest money deposit, you demonstrate to the seller that you’re serious about buying their home and have the means to do so. It’s also great for sellers who are a bit strapped for cash until the sale is complete.
6. Skip the Mortgage if You Can
If possible, an all-cash offer can be a great way to entice a seller. They won’t have to worry about your mortgage falling through at the last minute, and it can cut closing costs and times considerably. For the seller, it’s a lower-risk option that can be hard to turn down.
If you have the cash but aren’t comfortable spending it all, you could consider delayed financing. This allows you to buy the house with money and then take out a cash-out mortgage within a few months.
You’ll then get your money back, minus the closing costs, then make regular mortgage repayments.
7. Make Sure Your Offer Is Clear and Concise
Whatever you decide to put into your offer, the most important thing is that it’s easy to understand. The terms should be crystal clear, with no room for error. And for your offer to stand a better chance of being accepted, the fewer contingencies you have, the better.
From the seller’s perspective, your offer will seem like a lot less hassle than one that may offer more money but is filled with clauses.
Sit down and write it with your real estate agent, ensuring there are no contradictions. Ideally, there should be no need for the listing agent or seller to call your agent to clarify any details.
8. Keep Timelines Short
The quicker you can turn things around, the more attractive it tends to be for the seller. If you can have the earnest money deposit in their account and your formal financing application completed within three days of your offer, they’ll have a hard time saying no.
9. Be Prepared to Escalate
An escalation clause can be a great addition to your offer during a bidding war. It automatically boosts your offer in pre-set increments up to your maximum price if other buyers outcompete you. It enables you to stick to your budget while placing higher bids if necessary.
Another option is to offer an appraisal gap guarantee. This works in a similar way and lets the seller know that if your offer is higher than the appraised value of the home, you’ll make up the difference in cash.
10. Make It Personal
To truly stand out from the crowd, try attaching a personal letter to your offer. Let the seller know a bit about you and your family and what you love most about their home. You can tell them how you envision your life there and perhaps tug at their heartstrings a little bit.
Winning a house bidding war essentially comes down to strategy. Go in with your eyes open and one clear aim: making sure the seller chooses your offer. To do this, figure out what their issues are and how your offer will fix them. Then, make an offer that’s clear and easy to accept.
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