Couple A found their perfect home. Unfortunately, Couple B decided on the same property. The tense negotiations that followed ended with one couple paying far more than they originally planned, and the other couple spending a considerable amount of time and energy only to end up missing out on the house completely.
When two or more parties vie for the same property it’s called a bidding war. Each bidder may offer the list price, or even more than that, to increase their chances of landing the house they want. With the housing supply low and the amount of home buyers high, if you’re in the market for a house, you could be faced with a bidding war.
Here are 5 secrets of handling a bidding war and winning!
#1: Proactively Plan
Simply understanding what a bidding war is and the possibility of it happening while you are house hunting puts you miles ahead of those who don’t. Look at the process as a battle to be won and prepare accordingly. Before your buying journey begins, set your budget and note the absolute top dollar you are willing to spend on a home. Add the taxes, insurance, and any other fees associated with the property into your budget. Realize your target move-in date and determine your flexibility to change that if you need to. In addition, pull your credit report online, go through every line, and dispute any errors. Save up as much of a down payment as possible. Make it as easy as you can in advance for the sellers to choose you to be the buyer of their home.
Related Read: Making Your Offer Attractive to a Seller
#2: Behold the Power of Cash
Cash is King. When making an offer, double the amount of required earnest money. This shows you are serious about the purchase.
If you can pay for the home in cash, you will be much more attractive to the sellers than if they need to either wait on you to get approved for a mortgage loan or for you to sell your home.
During a bidding war, if you can offer to pay in cash, you will undoubtedly come out ahead of the other interested buyers who must still go through the mortgage process.
Now, we realize this is a big one. Because who has enough cash laying around to pay for a house up front? The next best thing is to…
#3: Secure Your Mortgage Loan
Negotiations with multiple buyers move fast. Waiting until you find a home to buy to speak with a mortgage lender is a big mistake. Work with experienced mortgage professionals like those at Mortgage Investors Group to get pre-approved and ensure a quick closing. This confirms that you know how much house you can afford and approximately what your mortgage interest rates will be. Having a mortgage loan secured is the next best thing to being able to pay cash. When you make an offer, include your pre-approved letter. Being pre-approved for a mortgage loan shows the seller you are serious about buying as well as you have the finances to purchase the property, both of which are effective ammo during a bidding war.
Related Read: When It’s Time to Speak to a Mortgage Professional
#4: Stir the Seller’s Emotions
While money is a big part of the negotiation for buying a house, it’s not the only thing. Remember, you are purchasing a place where, most likely, the sellers have made memories with their families and friends. Talk with your realtor and find out as much about the sellers as possible. Write a letter conveying why you like the house and paint a picture of how you’ll care for it and enjoy it if you end up buying it. Avoid mentioning the plan to knock down walls or completely renovate the kitchen, as these thoughts may traumatize a seller who wants the house to stay the same.
If everything else is equal, a well-written letter can be the difference in the seller choosing you or another party.
#5: Don’t Let the Bidding War Cloud the Big Picture
Your competitive juices can get flowing at the thought of “winning” with your bid. Unfortunately, you can end up going higher than you planned and giving up important concessions to win.
Fight this by adding an escalation clause that increases the offer by a predetermined increment to a maximum number of higher offers. Such a clause takes some of the stressful back-and-forth out of the scenario.
Also, and this is going to hurt, be prepared to walk away. Instead of overspending, move on to the next house on your list. Knowing when to stop in a bidding war is key to maintaining your finances and your perspective.
Chances are good that if you plan on buying a home in the near future, you will encounter a bidding war for the property. By keeping your good sense, and following these secrets, you’ll be able to participate and win!