By Kyle Spearin
This generation of buyers may be living in the most peaceful time in history. Still, they have some wars of their own to fight – bidding wars being the most cut-throat among them.
The housing market is red-hot, and everyone is pulling out all the stops to get what they want. Many people now choose their career choices on whether or not it will pay enough for them to rise to the top of a bidding war on their dream house.
But before we explore this topic further, it’s best to figure out how to make an accurate bid.
How to know if your bid fits the bill?
Find out the property's actual assessed market value and how much you are willing to pay based on return on investment analysis. Once you’ve settled on a figure, factor in how much future repairs such as rewiring, plumbing, HVAC updates etc, will cost you. Your conclusion should match your bid.
Chances are, most other bidders will have applied the same strategy.
So, the question still stands, “How do you win a bidding war on a house?” It’s easier than you think.
Ask to be preapproved
Every seller is on the lookout for a strong buyer – that one eager searcher who's reliable when it comes to payments and won't short-change them on time or money. In short, they need assurance you'll be able to see any contract to the end.
them know that you're a worthy contender and serious about negotiations by getting pre-approval from your lender. If your lender sees that you're finances are in order, they should be happy to draft a reference letter stating clearly that you're
more than fit to stand the test of a mortgage. Better still is if your desired property is mentioned in the letter, letting the seller know that you mean business.
Pre-approval has tipped the scales in favor of many contenders in the past, don't let it slip through your fingers.
Try to pay cash if you can
According to the Wall Street Journal,
a cash offer doubles your chances of winning a bidding war. Cash offers mean fewer contingency demands for you, the seller, the bank, and everyone else involved. This is especially true for distressed properties that need to be sold fast.
while cash offers are enticing to many sellers, not all will be tempted at the prospect of a cash offer. In fact, as the market continues its unabated shift in seller's favor, cash offers are becoming more common. This increase in willingness
to pay upfront means that offering to pay in full won't always secure you a property. If it’s the case that paying in full isn’t a sure bet of winning, then couple this tactic with the others mentioned in this article to give you that all-around
What if I can’t afford to pay in full?
Realistically, most people don’t have the spare change lying around to pay for a house – they’re expensive. In fact, a home is well-known for being the most expensive purchase most people will make in their lives. So, you won’t have to compete
against cash-paying bidders often.
However, you can still endeavor to try the next best thing and throw your hat into the sizable down payment. Once again, the more money, the better for everyone.
The traditional advice is to make a down payment of at least 20% of your new home's value. This is a great benchmark to aim for because it will get you more favorable loan terms, and you won't have to pay PMI.
Moreover, considering that the
average offered down payment is 6%, you stand the chance of winning out over many of your competitors.
And the old adage stands "give more, and you get more." The larger your down payment, the lower the interest rate on your future mortgage payments. So, what seems like a lot in the short term, is evened out in the long term.
Write them a personal letter
While it's true that fair housing laws must be followed during all real estate negotiations, strict rules often don't hold a place in matters of the heart or mind.
And that is precisely why you should appeal to the seller's human side.
Sure, so far, all you know is that they own and are willing to sell the property you're desperate to get your hands on. However, we can also infer some things about this mystery seller. One being that they've likely lived in the area for some
time and were fond enough of the property to purchase it.
So, tell them your story. Let them know why you’re moving, why you like the area, and what makes their home also your dream home. You might think they’ll be disinterested but the opposite is true – everyone (even property sellers) love a good
Some mortgage companies and real estate experts even endorse the act of writing a letter to the seller, especially when your offer is relatively low. If you don’t know where to start, take a look at this guide to writing a homebuyer’s letter
Should you Waive Contingencies?
Waving mortgage contingencies is risky business. So risky, in fact, that it's usually only seen sparingly in red-hot markets.
To understand its delicate balance, we first must get to know what it is: A mortgage contingency
is a condition written into a real estate purchase contract that the buyer indicates must
be met in order for them to close on the purchase. Essentially the sale is voided if certain financial conditions aren't satisfied, meaning that the property is returned to the seller and taken off the buyer's hands. This liberates both sides
from the buyer-seller contract, meaning that you – the buyer – will not be lumbered with a property you cannot pay for.
With a mortgage contingency in place, you simply need to secure a mortgage to fulfill its requirements. If you can't – no biggie.
However, should you choose to remove this protective clause from your buyer-seller agreement, you're left with
no financial or legal safety blanket if you're unable to get a loan within the outlined timeframe. As such, your contract is voided, and you do not receive a refund on any payments paid previously.
Never take the decision to waive mortgage or inspection contingencies
lightly and seek out professional advice before making any final decisions.
There are numerous cunning strategies to coming out on top in a bidding war. However, none are quite so effective as paying in cash, waiving contingencies, securing pre approval, and appealing to the seller through writing.
Still, bidding on a house with multiple offers is disheartening. However, considering the current housing market trend towards scarcity of supply – it’s a hard pill we’ll have to swallow. That doesn’t mean you have to admit defeat. Keeping a positive
attitude is as important as any step we’ve listed above.