Blog posted On May 04, 2022
If several people want same item at an auction, what happens? Chances are, they’ll try to outbid each other until one person makes an unbeatable offer. The same goes for the housing market. When there are several home buyers in the market but few homes for sale, oftentimes they’ll run into a bidding war. A bidding war is when two or more home buyers make offers on the same property and simultaneously increase their offers in order to win the home. The secret to winning a bidding war? It might be simpler than you think.
At the end of day, the seller holds the keys to the castle. Getting to know their needs and wants is an important part of making the winning offer. Do they want to close quickly? Are they concerned about preserving the home after they sell it? Do they want to avoid the hassle of contingencies?
"House shopping without a preapproval is the quickest way to lose the bidding war," says Jenna Richardson, chief operating officer, Real Estate House International. "Preapprovals are a step up from a prequalification and say that the lender has physically verified what was verbally discussed. It shows that you've done the work and are serious about your home purchase."
Some sellers might want to stay in the home longer than others, so a good way to bump up your offer without putting down more cash is allowing them whatever time they need.
Bumping up your down payment can show sellers that you’re willing to risk more of a deposit to make something happen. This can increase their confidence in your offer.
‘Cash is king’ for a reason. It offers less risk to a seller and a faster closing. In February 2022, cash offers made up 25% of home sales. So if you have cash, use it.
Some options that could bolster up your offer according to Richardson include, “Offer to pay a portion of the seller's closing costs. Let the seller choose the settlement attorney and/or make a joint decision on inspectors or contractors performing the repairs. Accept the home `as-is' and waive the right to ask for repairs. Allow the seller to remain in the home after closing for a set period of time rent-free."
Sometimes appraisals are lower than the sales price, meaning your lender would not finance the home’s full price. With an appraisal gap guarantee, if the negotiated price exceeds the home's appraised value, you will make up the difference.
Sometimes a seller wants to know that their home will be in good hands. With a personal letter, you can explain this and show how you will take care of their home.
The fewer the hurdles, the quicker the close, the better. A lower cash offer with no escalation clause might beat out an escalation-clause offer sometimes.
For tips on how to beat out home buyer competition, contact us.
Sources: Business Insider