Preparing for a Bidding War
It is a seller's market in real estate this year and now that spring has arrived, the competition for homes is likely to get even more fierce. If you are looking to purchase a home right now, chances are you may find yourself in a bidding war. Be prepared! Here are six ways to come out on top in a bidding war:
- Get your finances in order and get as much cash as you can. It is never too soon to get pre-approved for a loan. In fact, the sooner the better. Sellers will have lots of options and will be leery of those who do not have loans set in stone. If possible, bring cash to the table. Sellers will fear appraisals coming in low and loans falling through, so be prepared to cover the difference with cash.
- Don’t hesitate! Be the first to make an offer, and make it a good one. An insulting offer will put you at the bottom of the seller’s list, so it is not a good time to low ball. Come in at or slightly below asking price so that they know you are serious about purchasing their home.
- Escalation Clause. This is the amount of money the buyer agrees to increase the offer if there are other bids. If you offer the asking price of $400,000 on a house, but it might sell for $450,000, put in an escalation clause stating that you are willing to go as high as $460,000. But know your limit. Don’t offer more than you can handle. Also, make sure the clause states that the seller can only take the winning bid up to a level just above the competing offers. For example, if an offer comes in for $430,000, your bid would be upped to $431,000.
- Get a pre-inspection. It will cost you a few hundred dollars, but it can help you in a super-tight market. If you can make a bid that is not contingent upon inspection, sellers will look favorably on your offer versus the same offer from someone who has a contingency in their contract.
- Show the love! If you have found the perfect house and really love it, don’t be afraid to let the sellers know, either directly or through your Realtor. You can write a letter, send pictures of your family or even make a video describing why you love the house so much. Be specific in your praise. Sellers may appreciation the connection you feel with the house and choose you over other bidders.
- Think with your head, not your heart. Be smart! Purchasing a home is an emotional thing for sure, but emotions can get in the way of making wise decisions. Make sure you have done thorough research of the market: look at the most recent comparable sales, compare prices from a year ago, visit local school, have coffee at the closest café and speak to potential neighbors. Look at listings nearby. Whatever you do, don’t overpay because you get caught up in the heat of the competition. While the house may seem perfect for you, it is not the only house that will be perfect for you. So, keep a level head and make intelligent decisions.