6 tips to win a bidding war for your next home
Do you have what it takes to beat competitors for the house you want?
The bidding wars are back. While not every local real-estate market is experiencing bidding wars, some homebuyers find themselves competing for houses because not many are for sale in their markets. The result? Many homes have 10 to 15 offers the day they go on the market, says Susan Paul, owner of Better Homes and Gardens Real Estate Move Time Realty in Scottsdale, Ariz.
To compete in a bidding war, buyers need to prepare financially for the home purchase. They have to be familiar with property values in their target neighborhoods. And they must know what they want.
While offering the most money might seem like the best way to win a bidding war, sellers don't always choose the highest offer. Instead, sellers often prefer offers that are most likely to go through and that meet their conditions. Here are six tips to increase your chances of making the winning offer in a bidding war for the house of your dreams.
1. Have a lender on speed dial
"Too many buyers talk to a lender and start looking at homes at the same time," says Eldad Moraru, a real-estate agent with Long & Foster Real Estate Inc. in Bethesda, Md. "You need to have everything (financial) done before you begin to look." Then you are more likely to win a bidding war.
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He suggests selecting a lender and a loan, completing everything the lender requires and having a preapproval letter in hand — all before submitting an offer.
"You need to make sure your lender is ready to issue an approval letter specific to the property at the drop of a dime," Moraru says.
Paul recommends keeping a file folder constantly updated with your most recent pay stubs, all pages —even blank pages — of recent bank statements and any other documentation the lender may need to make a quick loan approval. Then you are ready to make an offer.
A strong preapproval is essential, especially if you are competing against buyers with cash to offer, says Alan T. Aoyama, vice president of Century 21 M&M Associates in Cupertino, Calif. Any hint that you might have trouble qualifying for financing could eliminate you from the seller's choice of buyers.
2. Cash in your pocket plus the paperwork to prove it
"An all-cash buyer can even waive the appraisal," Aoyama says. "If you're a noncash buyer, you need to have a copy of your proof of funds with your offer, along with a strong preapproval. At a minimum, you should offer a down payment of 20% if you know you'll be competing against other buyers. You need to show you have the funds to close and the ability to make up the difference if the appraisal comes in too low."
Moraru says that in Washington, D.C., and Maryland, it's common to supplement your offer with a financial information sheet detailing your job history, salary and bonuses, 401(k) balance, how much you have for a down payment and where the money is saved.
A higher-than-customary earnest money deposit can sometimes impress sellers when there is a bidding war, Moraru says. Just make sure you fully meet all deadlines and terms of the contract so you don't lose your deposit.
3. Make a fast, personalized offer
To compete against other buyers in a potential bidding war, make sure you see a home the day it goes on the market, so you can move quickly, Paul says.
"Your buyers agent should talk to the listing agent to find out what is motivating the sellers and what they need — such as a quick settlement or a post-settlement rent-back," Paul says. "Be flexible, and work that into your offer. Make it as easy on the sellers as possible so your offer is chosen above 15 others."
Paul says buyers should offer to help the sellers in any way they can, such as helping them find a home for their pet if they can't take it with them.
Moraru says while price is important, sellers want to know the buyer can finance the property and meet any other conditions. If you don't know the date when the sellers want to settle, you can write "will settle on seller's schedule" into the offer.
Aoyama suggests offering 30 days of free rent if the sellers want to stay in their home after settlement.
4. Keep your home inspector on alert
Most real-estate agents don't recommend buying a home without an inspection, but making your offer contingent on an inspection can weaken your position if other buyers are waiving an inspection contingency. Aoyama says buyers should carefully read all disclosures and reports that are available, because some sellers provide a home inspector's report for buyers. You can also have an home inspection done after your offer has been accepted that can provide information on the home's condition.
"If you're serious about a particular house, you can have a home inspection before you make an offer, and then make a noncontingent offer if you're satisfied with the report," Moraru says. "You'll need to move fast, though, and have a home inspector ready almost the day the home goes on the market."
Paul says you can bring a home inspector along when you first look at the home and say the inspector is a friend, just to get a feel for the condition of the home without an in-depth checkup.
"If the inspector says the house looks OK, you can feel better about waiving the home inspection contingency," Paul says.
5. Eliminate or reduce contingencies
One of the best ways to make your offer stronger is to eliminate contingencies regarding home inspection, financing or appraisal, Aoyama says. That puts you in a more solid position to win a bidding war. If you have cash reserves to cover the gap between a low appraisal and your offer, you can waive the appraisal contingency, he says, but leave your financing contingency in place to protect yourself.
"If you can't waive these, you can at least shorten the time frame, such as (by) reducing the loan contingency to 10 days if you know your lender can provide you with proof of financing quickly enough," Aoyama says.
Offering to buy the home as is can be tempting, but make sure you have an accurate idea of the home's condition with an informational inspection for safety.
Paul says buyers need to make their offer as strong as possible, so if you don't need a home warranty or help with closing costs, don't ask for them.
6. Try an escalation clause — maybe
An escalation clause is an addendum to a purchase offer that authorizes your agent to offer a specified amount above the best offer the seller receives. It's a powerful way to wage a bidding war.
"Buyers are offering escalation clauses a lot less often than when the housing market was booming, unless the home is priced way below market value," Moraru says. "I recommend that buyers who want to offer an escalation clause be very careful when choosing to go as high as they can with the understanding that they can live with the price if it goes to the maximum amount. They also need to feel that if someone else gets the house at a higher price, that buyer overpaid."
About time were seeing more affordable homes - my market. I'm moving to Charlotte, NC and there seems to be a lot of homes for me. I will have some refurb money, which I'm sure will come in handy. I do go to Zillow, Trulia, etc and that gives me lots to look at. Best to all.
More bad advice from MSN.
NEVER waive your right to inspection, no matter what your foaming at the mouth for a commission realtor says...
Once in a blue moon you can but for most buyers that are making one purchase don't jepordize your future.
If your get into a bidding war for a house...Then that is the wrong house for you! There are many houses in the marketplace so there is no need to get into a bidding war, most likely fabricated by the broker or agent to get the most commission. They prey on your emotions and feed into any uncertainty they sense. Don't get caught up in this nonsense. Educate yourself because no one else will. Learn about the area and what is available, etc. I got an amazon ebook for my son called " stuff I told my kids about how to buy your first house." It is 2.99, but free to borrow for amazon prime members. Good basic info to know BEFORE you see any agents or brokers.
Then 1 month later the house is still on the market. 2 months later...still on the market, etc. etc.
6 months later..."where were those eager buyers just itching to make an offer again??"
HAHAHA!! I think it's a common ploy that some agents use to create an artificial bidding war. i seriously doubt there were ever ANY other "interested" buyers! they were probably trying to avoid us making a lowball offer. We just tell them we're not interested in getting in any 'bidding wars' and we walk away.
As a professional home inspector for 25 years, the advise concerning home inspection is incorrect. First of all to have a home inspection before the buyer and seller are in contract almost never happens. Why? Because the seller is looking for the best offer, not making it easier for every person wanting to put an offer on the house. The home inspection is most beneficial to the buyer if an inspection was not performed for the seller first. The buyer will most likely want to use the report to present the best offer based on the conditions or use it to negotiate. Why would the seller want to help in this regard in a sellers market if they are not in a ratified contract? Would you let every potential buyer of say 20 or more people at different times come into your home and turn on every appliance, fixture, walk on the roof, etc. without being in contract. The contract provides safeguards during the buyers investigative rights. So why allow this liability without safeguards?
The best way to get the best offer is for the seller to have the inspections performed first. This then allows the seller to fix items of concern or disclose without surprises when the buyer presents their offer. The buyer will have a report to review as part of a disclosure package and can reduce the time needed for contingency removal. This also allows the seller to be more realistic on the selling price and can help to spur multiple offers by allowing potential buyers information on the home's condition. Inspectors in Calif. are liable to the buyer even if the buyer did not hire them.
Secondly, asking an inspector to do a visual inspection and give a blessing to a home without a formal report is asking the inspector to waive his rights as a business professional and makes them more prone to future liability. A written report is the only validation of findings we should be giving. No inspector gives a blessing to a house! That's like giving the home a rating of 1- 10. That's very subjective and not objective as we are supposed to be. We are non biased participants. We try to educate the client to the findings and defer to other specialists, not try to sell the house to the buyer.
Who wrote this crap, the NAR?
Anybody who buys now deserves the misery they will surely get.
Have the idiots forgotten "Buy now or be priced out forever" already.
I'd laugh out loud but I'm too busy puking!
Here we go again.....the Government just bought millions of foreclosed homes, that were on the market, and they have not released them yet, to keep the inventory LOW.
It's a shell game they are playing with buyers, and it should backfire in Fannie Mae and Freddie Mac's face!!
The inventory is super saturated, and it's a BUYER'S market, but the Real Estate Industry, and the Government don't want us to remember that report, that came out a couple of months ago. Sit tight, or make a lowball offer, and if the sellers are desperate enough, and you are pre-qualified, they will snatch your offer and you will save yourself tons of money.
Do a search on the property (Property History) on Realtor.com, and check out what it was appraised for, by the County, for taxes back when the Bubble was in it's finest hour. Chances are, you will see that it was appraised, on it's best day, for $89K, and they are now trying to soak you for $125K? or higher. Don't be deceived....if you do your homework, you will find the right house, at a SANE price.