When inventory is low, and demand for housing is high, buyers compete for the same property, and things can get crazy. How crazy, you ask? According to realtor.com, it is not unusual to see a home with 20 or 30 offers on it and sales prices at $50,000 to $100,000 over asking. It is easy for an emotional buyer to get caught up in the frenzy if they don’t have a plan and sound advice on how to win the bidding war in today’s real estate market.
Putting your emotions aside is step one, but you can take some other steps before looking at houses to make this process easier and make your offer more competitive. First, you will want to have your financing in order before you begin this process. It would be best to have your earnest money deposit ready, know how much you can pay towards the down payment, and review your credit profile. Second, you should know what you are looking for in a home and a neighborhood. And most importantly, you should have a team of experienced professionals working on your behalf. Your team should include a realtor, mortgage loan officer, and a real estate attorney or closing agent, if applicable.
You must know how much you want to pay for a home and how much you can afford to pay. In the current market, those numbers can be quite different. If you get into a bidding war, you need to know how high you are willing to bid. If you hit your number and are still not competitive, here are some tips:
Tips to win a bidding war
1. Get pre-approved
A pre-approval is one of the essential steps to getting approved for a mortgage. At MEP, our pre-approvals are fully underwritten, and they show that you are a serious buyer and an approved buyer. A pre-approval also speeds up the loan process, which can be the deciding factor for the seller when accepting an offer. You will already have most of the upfront work done with a pre-approval, and the rest of the process move quickly after that!
2. Waive contingencies
Contingency clauses are important and allow buyers to back out of a contract if certain conditions are unmet. One of the most common contingencies is the mortgage contingency which lets you out of a contract to purchase a home if your financing doesn’t work out. Of course, you only want to do this if you are confident that you will be approved for a mortgage.
3. Add an escalation clause
An escalation clause allows buyers to increase their initial bid by a certain amount each time another higher bid comes in. It is a good idea to put a cap on an escalation clause.
4. Write a love letter to the seller
Writing a love letter was unique, but it became more common and may have lost its charm. Basically, buyers will write a letter to the seller telling them why they are the right buyer for their home. According to Realtor.com, many buyers are still excited to write them.
5. MEP’s Property Inspection Waiver Program
The property you are looking at may be eligible for an inspection waiver. Our new tool allows LO’s to get a PIW before you make your offer which makes it much stronger, and you know how high you can go up in the bidding war without having to worry whether the house will appraise at the right price and if you will still qualify for the loan. Mortgage Equity Partners loan officers can walk you through this process but contact us first to have the information you need in advance of making an offer.
If, at first, you don’t succeed, keep on trying. If another buyer was chosen over you, that doesn’t mean some part of their transaction might not fall through, and if you have a competitive enough offer, you might end up being pleasantly surprised that you are next on the seller’s list!