Today’s housing market is markedly different than what we had just a year ago. Back then, people could make low-ball offers and have a good chance of them being accepted. Now, buying a property has become more expensive and complicated, and there are reports of bidding wars all over the country, even as we move into the slower selling season.
There’s more to winning a bidding war than crushing other investors with your bank account until the home seller caves to your offer. When buying a property, whether it’s a home you’re going to live in or one that you’re acquiring as an investment, it’s best to do your research, set boundaries, and be strategic. Armed with knowledge, you’re more likely to be the victor in your battle to buy a property without paying more than you should.
The following 11 strategies can help your offer stand out and win a bidding war.
1. Establish relationships in advance
Having established relationships with real estate agents and brokers can go a long way. You don’t always have to have the highest offer to win, but you do need the offer the agent likes the most. That often comes down to your confidence in closing and ensuring the agent will get paid their commission quickly. If they know you and know you are qualified, you will be way ahead of the game.
As a buyer, you should pick a representative who is experienced, local, and well known. The more respected the buyer agent or broker is within the community, the better chance they can successfully courting listing agents. While you’re at it, get in the good graces of listing agents, too, as they are the only people who meet all of the parties involved in a sale. In a competitive situation, working with a known broker and meeting face-to-face with the listing agent will make the agent feel more comfortable, which will boost your chances of winning, especially if two offers are very close.
2. Know the neighborhood
Make sure that your expectations aren’t out of line with your capabilities. Some neighborhoods are more expensive. Some have more (or less) popular housing types, and all have different types of nearby amenities. There are many websites with price comparisons for properties in each community. Research can help you avoid neighborhoods out of your price range or help you discover the right locations for you. Use these sites to narrow down the places where you’d like to buy a property.
3. Make strong offers
Standing out in a bidding war is important. If you don’t want to pay more, submit higher earnest money deposits so the seller knows how serious you are. A higher earnest money deposit could also show the seller that you are financially stable, and thus the transaction is less likely to fall through.
Remember, though, earnest money isn’t always refundable, especially if you don’t end up closing on the property. Be intentional when submitting a higher deposit and understand the contingencies you agree to.
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4. Write a personal letter
You could write a letter to go along with your offer. Adding your story to your offer can help the seller feel an emotional connection to you. This not only makes you stand out in a bidding war, but also the seller might feel more inclined to be flexible with you.
That being said, it might also influence a seller not to choose you. While this is rare, there are some things to consider when writing a letter with your offer. Focus on what the house can do for you without forgetting what the home already means to the owner. This might be the home where they raised their children or where they’ve lived for years. Making your letter too much about you could cause the seller to consider other offers.
4. Add an escalation clause
Another way to create a strong offer is by agreeing from the start to increase your offer if there’s a higher bid from another buyer. You can accomplish this by writing into the contract that you will offer, for example, $1,000 or $5,000 more than the highest offer submitted.
When pursuing this technique, make sure you include a cap on the total amount you are willing to pay, or you could easily surpass what you want to spend. Pick the point at which you will walk away from the property and then stick to it. Getting caught up in a bidding war can be exhilarating, but don’t let the thrill make you overspend.
5. Drop contingencies
You might be tempted to add contingencies into your offer, especially if the real estate market is moving fast or you fear something will get overlooked in the transaction. Types of contingencies include:
- Home inspection
- Home sale
That being said, sellers prefer offers without any contingencies. Dropping contingencies reassures the seller that nothing will pop up at the last minute in a close. It can give sellers more confidence in your offer compared with the others they’ve received that include contingencies.
6. Offer all cash
Knowing that speed is the key to winning a bidding war, you should be prepared to pay in cash, if at all possible. No matter how big the down payment, processing, and mortgage approval from the time the offer is accepted until the time the keys are handed over can be a long wait.
Coming to the table with cash gives you a leg up on the competition. Sellers love cash offers because they’re more reliable, and the sale is less likely to fail at the last minute. Not all buyers or investors can make all-cash transactions, though.
7. Be preapproved
If you cannot make an all-cash transaction, get your loan preapproved and offer as much cash as it makes sense for your financial situation. Offers with a mortgage preapproval letter can make the seller feel more confident because the first step in securing financing has already been completed.
Preapprovals also help you as the buyer by knowing
- How much a lender is willing to offer you
- What the monthly mortgage payment will be
- Which mortgage options are available to you
A lender looks at your credit score, job history, identification, bank statements, current debts, and your completed mortgage application before they can preapprove you. If you’re preapproved, you’ll receive a specific loan amount they are willing to lend you, which you can submit with your offer.
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8. Act fast
As noted in No. 6, speed is a big part of the equation in winning a bidding war. The internet has significantly sped up the sales of homes, with some houses selling the same day that they hit this seller’s market. If a property you want becomes available, don’t wait for the open house and forget low-ball offers. Look at the property so you can make your evaluation and make your best offer right away. You may only get one crack at this, so have all your paperwork in order ahead of time. When the right property enters the market, you can swoop in to get it.
9. Be flexible
Expressing your willingness to work with the seller’s timetable and requirements can go a long way toward a successful purchase. If the seller wants to remain in the home for a period of time after closing, you can offer a “lease back” or “rent back,” which means that you would become their temporary landlord until they move out. If you are making a bid on a short sale, make it clear to the seller that you are willing to wait for the bank’s decision, no matter how long it may take.
10. Buy as-is
Be the easy buyer to work with. If you throw up red flags that you’ll be difficult throughout the process, most sellers and agents will shy away, no matter the size of your offer. Instead, price your offer as-is and draw up a simplified contract. Many sellers will take a lower purchase price in exchange for a low-hassle transaction that will close on time. As an added benefit, these same agents or sellers may choose you again one day. The better your reputation, the more access you’ll gain and the better prices you’ll get.
11. Keep trying
Don’t be intimidated by higher bidders; if you really want the property and you think you can make it work, push forward. Make the offers and bids that you’re comfortable with, and remember your “walkaway number.” Bidding wars can get emotional quickly, so it’s important to set and remember your financial limitations.
If you lose the bid, offer to be a backup in case the accepted deal falls through. Remember that not every opportunity will go your way, and it’s better to have bid and lost than to have overbid and overpaid.
If someone else closes on the property, start searching for one to bid on. Buying real estate in a hot seller’s market might mean submitting a few offers before you close on your new property.
Bidding wars have been more common for lower-end properties, but now no property is safe. Even with all of the foregoing information, winning a bidding war also requires some luck. As noted already, employ winning strategies and don’t get so caught up that you end up buying a property for more than your maximum price. Do your research, know your limits and be aware of local real estate market values. Being armed with the proper knowledge can give you an edge over the competition, allowing you to outsmart them without overbidding.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
Source link: https://www.biggerpockets.com/blog/win-bidding-war by Sterling White at www.biggerpockets.com