Today’s housing market is markedly different than what we had just a year ago. Back then, people could make low-ball offers and actually have a good chance for winning. Now buying a property has become more expensive and complicated; there are reports of bidding wars breaking out all over the country, even going into slower selling seasons.
There’s more to winning a bidding war than crushing other investors with your bank account until the home seller caves to your offer. Whenever buying a property, whether it’s a home you’re going to live in or one that you’re acquiring as an investment, it’s best to do your research, set boundaries and be strategic. Armed with knowledge, you’re more likely to be the victor in your battle to buy a property, without paying more than you should.
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How to Win a Bidding War
Here are seven tips to keep in mind to help you win a bidding war:
- Know the Neighborhood. Make sure that your expectations aren’t out of line with your capabilities. Some neighborhoods are more expensive, others have more or less popular types of housing, and they all have different amenities to offer nearby. There are many websites out there that can give you price comparisons for properties in each community. They can help you avoid neighborhoods that are out of your price range and discover the places with the right features nearby. Make use of them so you can narrow down the places where you’d like to buy a property.
- Involve the Right Players. Unless you’re professionally trained in the purchase and sale of homes, you should pick a representative with whom to work that is experienced, local and well known. The more respected the buyer agent or broker is within the community, the better chance they have at successfully courting listing agents. While you’re at it, get in the listing agent’s good graces, as he or she is the only person who will meet all of the parties involved in a sale. In a competitive situation, working with a known broker and meeting face-to-face will make the listing agent feel more comfortable and boost your chances of winning, especially if two offers are very close.
- Run, Don’t Walk. The Internet has sped up the sales of homes immensely. Some houses are selling the day they hit the market. If something you want becomes available, don’t wait for the open house and forget low-ball offers. Get there as soon as you can to make your evaluation and make your best offer sooner rather than later. You may only get one crack at this, so make sure you prepared ahead of time with all your paper work in order so that when the right property enters the market, you can swoop in to get it.
- Cash is King. Knowing that speed is the key with winning a bidding war, you should be prepared to pay in cash if at all possible. No matter how big the down payment, processing and approval of a mortgage from the time the offer is accepted until the time the keys are handed over can be a long wait. Coming to the table with cash gives you a leg up on the competition. Sellers love cash offers because they’re more reliable and less likely to fail at the last minute. Not all buyers or investors can make all-cash transactions, though. If this is you, get your loan pre-approved and be sure to bring as much cash to the table as makes sense for your financial situation.
- Be Flexible. Expressing your willingness to work with the seller’s timetables and requirements can go a long way toward a successful purchase. If the sellers want to remain in the home for a period of time after closing, offer them a “lease back” or “rent back,” which means that you would become their temporary landlord until they move out. If you are making a bid on a short sale, make it clear to the sellers that you are willing to wait for the bank’s decision, no matter how long it may take. One thing you might not want to be flexible on is the home inspection. Whether you plan to move in or are buying a home as an investment, you don’t want to end up buying a property that needs a lot of expensive work to be livable.
- Sweeten the Pot. Agree at the get-go to increase your offer if there’s a higher bid from another buyer. This can be accomplished by writing into the contract that you will offer, for example, $1,000 or $5,000 more than the highest offer submitted. When pursuing this technique, make sure you include a cap on the total amount you are willing to pay or you could easily surpass what you wanted to spend without it. Pick the point at which you will walk away from the home and stick to it. Getting caught up in a bidding war can be a bit exhilarating; don’t get so caught up in the thrill that you overspend.
- Try, Try Again. Don’t be intimidated by higher bidders; if you really want the property and you think you can make it work, push forward. Make the offers and bids that you’re comfortable with, and remember your “walkaway number.” Bidding wars can get emotional quickly, so it’s important to set and remember your financial limitations. If you lose the bid, offer to be a backup in case the accepted deal falls through. Remember that not every opportunity will go your way, and it’s better to have bid and lost than to have overbid and overpaid.
Bidding wars have been more common in the past for lower-end properties, but now no property is safe. Even with all of this information, winning a bidding war can be a gamble and require a stroke of luck to achieve success in buying a home. Employ winning strategies, but don’t get so caught up in the drama that you end up buying a property for more than the maximum price that you can afford to pay. Do your research, know your limits and be aware of local real estate market values. Being armed with the proper knowledge can give you an edge over the competition, allowing you to outsmart them without overbidding.