If you are buying a home at the height of a citywide seller’s market or simply want a sought-after house in a neighborhood with limited turnover, you may find yourself in the midst of a real estate bidding war.
Competing against faceless prospective buyers may bring out the warrior in you, but before you decide to go all out in your battle, you need to step back and decide how much you really want that particular home.
Should You Compete in a Bidding War?
In the thick of competition you may forget your end goal is a home you love and can afford to own. If your offers have been turned down by several sellers because of competing buyers, then you may feel pushed to make an aggressive offer for the next home you like.
You should stop yourself from competing just because you think the time is right to become a homeowner or to move up into a new place. Instead, think about whether you really want the particular house enough to fight for it.
To guard against making an emotion-fueled offer for a house, take a hard look at your finances. While it may feel good at first to beat out other buyers and to purchase a property, it won’t feel so great in a year or two when you are struggling to make the payments on a house beyond your means. Know your limits before you begin to bid.
Prep for Battle
Your first step before entering a bidding war should be to consult with a lender to understand the maximum amount you can borrow, to evaluate how much cash you have to spend while keeping enough money in a reserve fund.
Next, make sure you hire an experienced REALTOR® who can share information about local market conditions and communicate with the seller’s agent. You should rely on your REALTOR® for advice about how to handle a bidding war, but be sure to do your own research: visit a lot of homes in the area where you want to buy so you understand the value of various properties before you make an offer.
Bidding War Strategies
Your REALTOR® should work with you to craft an attractive offer based on the list price for the home, a comparative market analysis of similar homes, and knowledge gained from the sellers’ agent about the sellers’ motivations and preferences.
In a bidding war, it’s important to work with a REALTOR® who will move quickly to present your offer and any counteroffer, one who is easy to communicate with during the transaction.
While you may assume money is the motivator that steers sellers to one buyer over another, there are other ways to make your offer attractive, such as these ideas:
- Solid financing: You may be competing against cash buyers, so make sure your loan pre-approval is in place and you have completed all required documentation other than identifying a specific property.
- Eliminate contingencies – carefully: If you own a home now, you may want to offer to buy another home without making your contract contingent on the sale of your current home. You take the risk of carrying two mortgages for a while, so make sure you can safely handle the payments. You can also decide to have an “information only” home inspection rather than making your offer contingent on the outcome of the inspection.
- Make the settlement date convenient for the sellers: Rather than negotiating on a closing date convenient to all sides, you can tell the sellers you will work with their schedule or rent back the property to them after the closing.
- Offer to pay all closing costs: You can reduce the sellers’ out-of-pocket expenses by offering to pay their share of the settlement fees, but before you do this get an accurate estimate of what those costs will be and make sure you have the funds available to pay them.
- Personalize the transaction: Sometimes the tipping point for sellers who receive multiple offers is something emotional rather than financial. A personal letter describing your love of their home may tilt the scale in your favor.
- Try an escalation clause: Money talks, too, so you can add an escalation clause to your offer that increases your bid by a certain amount above other offers. Just make sure you set a limit on how high your offer will go.
- Control yourself: Remember that any offer is subject to an appraisal (unless you waive that contingency, but that’s not recommended unless you have plenty of cash), so be careful not to bid above the market value of any property.
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