Have you ever stumbled upon a house that seemed perfect to you, only for someone to outbid you? If it’s a seller’s market where inventory levels are low and demand levels are high, it’s important to take measures to set your offer out from the crowd. There may be multiple buyers trying to purchase a property you have your eyes on. In such cases, both parties wind up bidding against each other, trying to get the house for themselves. Although there’s no surefire method that’ll help you win a house bidding war, here are 8 tips that will boost your chances of success.
Obviously. The best way to win a house bidding war is by simply ponying up more money for the house. Based on overall demand levels, location, and the price, you can make a smart bid that’s just a few thousands more than the nearest bid. You don’t need to bankrupt yourself, trying to outbid others by tens of thousands of dollars – that’s not good for you.
However, do remember that increasing your bid amount doesn’t mean your bank will back it up all the time. Loan amounts are only sanctioned for the appraised value of the house. If you bid higher than that and win the house, you might have to shell out the extra cash on your own.
Escalation clauses are great if you’re stuck in a house bidding war. To put it simply, an escalation clause states that you’re prepared to increase your offer by a certain increment whenever another home buyer matches the offer you’ve made. Additionally, it increments your offer every time a bid higher than yours is made, subject to a specific limit.
Some people argue against escalation clauses, claiming that it allows the buyer to see that you’re prepared to make a much bigger offer than you initially did. But if you’re intent on outbidding your opponents, it’s fine to have an escalation clause on your offer. Consult your realtor to figure out how to make the best use of an escalation clause in order to win the house within your budget.
Your pre-approval report is the most crucial document you’ll need during your home buying journey. You’ll need to get this before you contact a Realtor or start browsing for properties in your favorite location.
Don’t confuse a pre-qualification for a pre-approval. The former is usually a general review of your credit score, credit report, and other important application information whereas the latter delves into every detail regarding your creditworthiness.
Your pre-approval report determines the amount of mortgage you’re qualified for under a program. It can set your offer apart from the rest if you’re in a low-inventory, high-competition market. Once you have your pre-approval report with you, you can go ahead with your plans and start shopping for properties.
Being prepared to put down more upfront on your mortgage can give your bid the boost it needs. Committing to a bigger down payment means you need to borrow less, which can give you greater leverage during the bidding war. If the price is being driven up higher by the competition, you have more leeway to operate.
Don’t just make a verbal promise – back your claims up with appropriate financial proof. Important financial documents such as your 401(k) balance, payslips, and tax filing forms can bolster your case and show that you have access to the cash needed to make a bigger down payment on the house.
Having the ability to make a full-cash offer is a tremendous advantage, especially in a competitive market situation. Since there’s no need to undergo an appraisal and inspection process (mandatory for mortgages), you’re more likely to close the deal with no issues.
Additionally, paying cash can speed up the buying process greatly. Not only does a cash offer increase your odds of getting the house, but the seller might also even give you a price discount that you can spend for other purposes.
No seller is interested in letting their house stagnate on the housing market for a long period of time. None of them look forward to relisting their homes in the event of a contingency issue either.
Drop all contingencies if you want to make a stronger, more appealing offer. For instance, your offer might have a contingency clause in it that requires the appraised value of the house to either exceed or meet the offer price. That’s because mortgage firms will not lend any more cash than the appraised value of the house. But if you’re trying to buy in a highly competitive market, you can improve your odds of buying if you agree to make a payment in cash, should the home be appraised for a lower amount.
For instance, the bank might appraise the home at $6000 less than your offer amount. You’ll need to pay this extra amount in cash directly to the seller as your mortgage will only cover the bank’s appraised value. Be careful not to overextend yourself – you still have to cover closing costs and the down payment.
Although money will always determine a seller’s final decision, it’s always a good move to get personal with them in order to improve your odds of winning the bidding war. Tell the seller how much you love their property in person or via letter. Be frank with them about your feelings for their house and what sets you apart from the rest. It’s fine to add a pinch of emotion here as well. Of course, it won’t work on most sellers and definitely not on an investor. But if you really like the property and want to express your feelings here, what do you have to lose?
Winning a house bidding war requires money, strategy, and luck. Always remember to consult your realtor in every step you make, which will help you make the right decision when you need it. Don’t lose your confidence and stay calm throughout the journey – it will happen if you want it bad enough.
