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5 Tips for Winning a Bidding War
In a competitive market, the average homebuyer makes two offers before their third is accepted, according to the National Association of Realtors. In other words, if you’re looking to buy a home nowadays, chances are you’ll find yourself in a bidding war.
For some buyers, this might be their last chance to get a great deal on a home before interest rates rise any higher. Because once they do, managing monthly mortgage payments becomes that much harder.
So, how can you set yourself apart from the average homebuyer and win a bidding war on a home? Here are five tips:
1) Get pre-approved for a mortgage
A mortgage pre-approval involves a thorough credit check and a review of your financial documents. This makes it a strong indicator to sellers that you’re a serious and qualified buyer. It’s especially important if you’re looking to buy in a seller’s market where homes are selling fast.
When you’re pre-approved, the lender will provide you with a letter that states how much they’re willing to lend you. The letter might also state the conditions of the loan, such as the interest rate and any fees associated with it. In any bidding war, it’s important to have this letter in hand to show the seller that you’re financially capable of buying their home and that you’re ready to close on the deal.
It’s also important to note that pre-approval and pre-qualification for a mortgage are different things. Pre-qualification is an informal process in which the lender will give you an estimate of how much they think you can afford based on your self-reported information. It doesn’t carry as much weight as pre-approval, so make sure you get pre-approved before making any offers on homes.
2) Make an offer above the asking price
In a bidding war, you’ll need to be prepared to make an offer that’s above the asking price.
How much should you raise your offer? That depends on how many other bidders are involved and how badly you want the property. You don’t want to lowball the seller and have your offer rejected outright, but you also don’t want to overspend on a property just because you’re in a bidding war.
If you’re unsure how much to increase your offer, talk to your real estate agent. They should have a good idea of how much the home is worth. And while the seller’s agent can’t tell you how much other buyers have bid, they can give your agent a general idea of how many offers have been made. That way, you can make a more informed decision about how much to offer.
3) Put down a larger earnest money deposit
When you make an offer on a home, the seller will usually ask for what’s called an earnest money deposit. This is a sum of money, typically 1–3% of the home’s purchase price, that goes into escrow to show the seller that you’re serious about buying their home.
To stand out in a bidding war, you might consider increasing the earnest money deposit. This sends a strong signal to the seller that you mean business and are more likely to follow through with the sale.
However, keep in mind that if you back out of the contract after signing off on the contingencies, you could lose your deposit altogether. So make sure you’re 100% committed to buying the home before increasing your earnest money deposit.
4) Remove certain contingencies from the offer
In a real estate contract, there are typically several contingencies that must be met before the deal can be finalized. For example, the buyer will almost always have a home inspection contingency, which gives them the right to back out of the deal if the home inspection turns up any major problems with the property.
Other common contingencies include the appraisal contingency and the loan contingency.
When you’re in a bidding war, removing some of these contingencies can give you an edge over the other buyers. For example, in a seller’s market where homes are selling fast, the appraisal contingency is often one of the first to go. By removing it, you’re telling the seller that you’re willing to buy the home even if the appraisal comes in low.
5) Work with a rockstar real estate agent
Whether you’re in a bidding war or not, it’s important to have a rockstar real estate agent in your corner. A great agent can help you strategize how to make the best offer, how to stand out against the competition, and how to negotiate with the seller’s agent.
They can also keep you updated on any new developments in the bidding war so you can make informed decisions about how to proceed.
If you’re not already working with an agent, interview a few candidates before making your decision. Once you’ve found someone you trust, make sure to communicate your goals and expectations. Your agent should have your best interests at heart and help you navigate the bidding war so you can come out on top.
With these five tips, you’ll be well on your way to winning a bidding war on a home. Just remember to stay calm and be prepared to walk away if the price gets too high.
Reach out to an advisor today for more information. Good luck!
