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6 Ways To Win A Bidding War Without Overpaying
Bidding Wars – 6 Ways to Win One Without Overpaying!
When you hear the words “bidding war,” you may have visions of rapid-fire auctioneer saying; I’m looking $100,000, now $150,000. How bout $200,000? I got $200,000...looking for $300,000. I got $300,000. Going once, going twice, sold! Now, that sort of bidding war at auctions is all about the dollars. But, when you enter a bidding war for a house, there are other factors besides money that can come into play. Bidding wars are beginning to crop up during the prime home buying and selling season. So, if you’re looking to buy in an area with low inventory and high demand, you’re probably going to run head-first into a bidding war.
After the housing bust of 2008, bidding wars were rare, but now bidding wars are back in full force. The important thing to keep in mind is not to offer to pay more than what you can afford. Here are six ways to win a bidding war without overspending.
1. The first way to win a bidding war without overspending is to know what you can really afford
As far as emotional purchases go, buying a home ranks right up there with choosing a wedding dress or buying your dream car. However, the financial stakes are much higher. Unless you know ahead of time exactly how much house you can afford, you could easily be sucked into spending too much. Your mortgage lender can help you determine that dollar amount and once you have that number it is time to play ball. When it comes to a potential bidding war on a home, it is usually best to submit your best offer early. If $1,000 or even $10,000 keeps you from pulling into the driveway of your dream home just because you wanted to play hardball, then you might coming in low on a home more than you can imagine. But, the flip side is also true. If you get outbid because someone offered more than you were comfortable with spending, then you didn’t lose anything and made a smart financial decision.
2. The second way to win a bidding war without overspending is to have your realtor communicate with the listing agent
You can put in an offer, but unless your realtor makes the effort to communicate with the listing agent, your offer, in a multiple-offer scenario, will probably not stand out. Recently, we received 15 offers for a property we listed. Thirteen of those offers were just emailed to us, and the buyers’ agents did not speak to us directly. However, two agents called and had the buyer's lender follow up. One of the lenders and the buyer’s agent were able to address a concern in a way that assured the seller that their offer was strong and would definitely close quickly. The chosen offer wasn’t the highest offer, but it was close, and it was the offer that the seller selected. The additional conversations between the lender and the buyer's agent with me, the listing agent, made all the difference and can help a home buyer become a home owner.
3. The third way to win a bidding war without overspending is to be pre-approved for a home loan and be working with the "right" mortgage lender
A mortgage loan pre-approval involves submitting a mortgage application complete with verifying documents like tax returns, W-2s, pay stubs, etc. However, the key here is making sure that you get that loan pre-approval from a mortgage lender that close your home loan quickly. What do I mean by quickly? You need a lender that can close your loan in 10-21 days (25 days at the most). This is part of my 2 to 3 Weeks to Keys Home Buying Strategy.
The reason for this is in a seller's market (like the one we are in now), a quick close could be the difference between you getting the home or not getting it. If there are multiple offers on a home that you are wanting to buy, the only thing that may separate you from everyone else is a quicker close. Not getting pre-approved by a lender that can move quickly sends a message to a seller and the listing agent that you aren't taking your house hunting or house buying seriously.
Here's a quick story. A client of mine is closing this week on a nice 4 bedroom, 2 bathroom home with wood floors, a tile roof, granite counter tops and more. The sellers received 5 offers but my client came in with a strong offer in every possible way. However, the key to them getting the home was a 15 day close. Having you, as a home buyer pre-approved with the right mortgage lender is your realtor's first opportunity to advise you and earn your trust. Remember, all lenders are not created equal. A lender can make or break your entire dream of home ownership. Most great realtors have some great lenders that can close quickly. You as a home buyer should be able to be pre-approved today, be out looking for homes tonight or tomorrow and in as little as 10-21 days have the keys to your dream home.
4. The fourth way to win a bidding war without overspending is to be willing to rent the house back to the sellers
Some sellers aren’t interested in a short closing at all. In fact, the opposite could be true. Sellers who don’t have to sell quickly but who are just making a change, such as downsizing or upsizing, might want a long closing or some sort of flexible deal to give them time to find their new home. Being able to rent back the property to the seller for a few weeks or months while they solidify their next purchase can go a long way into not needing to overbid on the property. Depending on the situation you may want to offer the seller a free rent back or only charge them your monthly payment. Keep in mind that you you will not have to make your first payment on your home for 30-60 days. Ask me how this works. This is an amazing realization and can help you bridge being a renter to an owner without having to pay a rent payment and a home payment in the same month.
5. The fifth way to win a bidding war without overspending is to submit an as-is offer
The fewer conditions you put on buying the house, the more attractive you look to sellers. Consider offering to buy the house as-is. What this means is you still do your inspections, but you shorten up the time frame for doing those inspections. You still have your whole house inspection and your pest inspection done and as long as you have a firm grasp of all the possible defects a property may possess and the costs associated with remedying those defects, you can close as normal. If there are some very serious problems like a leaking roof or and non operational HVAC system or something else, then you can try to re-negotiate with the seller or even cancel the sale. Just because you go into an offer "as-is" does not mean you are fully obligated to purchase the home no matter what. Everything is negotiable.
6. The sixth way to win a bidding war without overspending is to pay more in cash
I know that this seems totally contrary to the rest of this blog. However, in a bidding war, the value of the house (the price a buyer is willing to pay) doesn’t always match the appraised value. The appraised value could come in lower than the actual purchase price. If you have the means to come in with the extra cash to make up for a lower appraisal, don’t keep that piece of information a secret. If you are willing to bring cash to close — such as adding the difference between the appraised value and sales price to your down payment — be willing to put that in writing. Provide proof of funds that show you have the full down payment and the money for the difference between the purchase price and the appraisal. If your realtor is confident, he or she should be able to provide the appraiser with potential comparable sales that prove the value of the home you are buying. Keep in mind, if there is a variance, it may be worth it to pay the difference in cash as market values are rapidly rising in many areas.
In closing, if you lose a bidding war and the seller chooses another offer, have your agent keep in touch if you’re still interested in the house. The highest offer doesn’t always mean it’s the best one. Offers that come in way over asking price have a very high cancellation rate. When that happens, the seller loses the momentum of being the fresh listing on the market. That could make your offer attractive again. The home buying process can feel really cutthroat at times, and you may lose one or two bidding wars before you win one; it’s almost a rite of passage. But you’ll be in a better position to win the house you want with a knowledgeable real estate agent to help you write a strong, competitive offer that follows these strategies. Let me be that agent if you are in Northern California and if you are somewhere else in the world let me refer you to one in my vast network.