how to win a bidding war: gay couple standing outside of home they just purchased together
Buying

Making an Offer? Here’s How to Win in a Bidding War

As inventories continue to shrink and mortgage rates continuously hit record-lows, if you’re thinking of buying a home, the offer needs to stand out. If you find yourself in a bidding war, here’s how you can win amongst other buyers.

Shares 0

Many homebuyers in recent months had to beat some heavy competition to nail the house they wanted. And bidding wars are likely to continue as more and more buyers descend upon the shrinking number of properties for sale to take advantage of record low mortgage rates.

Read: 5 Reasons Why Fall Will Be a Good Time to Sell

Consequently, the question for buyers is not just how much to offer on a house they like, it’s how can they make the offer stand out from that of anyone else who has an eye on the same place. Here’s a some tips:

Read: How to Build Your Real Estate Team

  • Secure a lender’s pre-approval for the maximum amount you can borrow, which, when adding in the cash you have for a downpayment, will give you an idea how high you can bid. This is not the same as being prequalified, which tells you only that you can qualify for financing. A preapproval means that as long as the house appraises for the amount you want to finance, you are good to go.

Read: The Advantages of Securing a Mortgage Pre-Approval

  • Agree to pay all cash if you can. Even though sellers get all their money at closing whether you pay cash or secure financing, cash offers are like gold because they mean nothing can or will go wrong with your financing. There are loan programs that allow cash buyers to refinance their deals within six months of closing, so you can replenish, at least in part, whatever source you used for the money at little expense.
  • The cleanest offer often wins the day. That means no contingencies, or at least as few as possible. So don’t make your offer subject to selling your current house or breaking your lease. And don’t make it subject to securing financing. That should have been taken care of in advance.

Sellers will “usually take a little less if it means peace of mind,” says Aaron Hofmann of Atlanta Communities in Smyrna, Georgia. Offers are usually contingent on the house appraising for a certain amount. You can pass on this as well. But without that protection, you will be required to come up with extra cash if the valuation comes in too low. So agree in writing that you will make up the difference in any shortfall between the appraised value of the property and what you agreed to pay.

What You Can and Can’t Waive

You can’t waive the appraisal. Lenders require one to make sure they are not lending more than the place is worth, but you can pick up any difference with a larger down payment. For example, if you offer $500,000 and the place is appraised at $490,000, your down payment will be $10,000 larger. But as a protection, make sure you put a limit on the extra amount. Otherwise, this idea can get very expensive.

Some people will waive the home inspection contingency, but think twice about doing that. Some sellers don’t like the idea of taking their homes off the market until the inspection takes place and you are satisfied with it. But if you forego this important protection, you are taking the chance that the roof is not on its last legs or the HVAC system is about to crap out.

how to win a bidding war: gay couple standing outside of home they just purchased together

One compromise is to promise to have the inspector examine the house and file his report with seven days. Here, you can stipulate that if you miss the deadline, you’re all in, no ifs, ands or buts. You also might want to agree that only major issues costing more than X amount – say $5,000 – will be deal breakers. Otherwise, you’ll take care of the little things after you move in.

  • Consider an “escalation clause” which says you’ll go X-amount higher than any offer that beats yours. In another words, if you offer $500,000 and someone else offers $550,000, you have promised to best that amount by, say, $500 or $1,000, but make sure you set a limit.

Read: What to Know Before Considering an Escalation Clause in Real Estate

Other Ways to Differentiate Your Offer

You also can offer to help pay for the seller’s move. Perhaps you can hire the mover or pay some of his traveling expenses – hotel, meals, etc. – if he’s leaving the area. Here, set a maximum amount you’re willing to pay.

  • Attach a large earnest money check to your offer. The larger, the better because it again shows the seller just how serious you are and that you have the financial wherewithal to follow through. Your money should be safe because the seller’s agent is obligated by law to place it into a separate escrow account to be applied as part of your down payment at closing. Realize, though, that if the deal falls through and you are at fault, the seller could claim your deposit.

Speaking of attachments, consider writing a heartfelt letter about how wonderful you find the house and how you and your children plan to cherish and take care of it just like the seller obviously has. Corny? Sure. But more than a few deals have been sealed because a sentimental seller failed to see the sale as a business deal and nothing else. So write it by hand, and attach a sweet photo of your darling little ones.

woman writing letter

Read: The Risk of Personal Offer Letters in Real Estate

To bolster this, ask your agent for a face-to-face sit-down with the seller and his family. Bring along your moppets, dress them up to the nines and make sure they are on their best behavior. “It’s my job to make the seller fall in love with my buyer,” an agent confided some years ago.

If you should be beaten out by someone else, don’t despair. Ask that your contract be held as a backup just in case the offer that was accepted falls through. More than one in four contracts never make it to the closing table, so you could be next in line.

Looking to Buy?

If you’re interested in buying a home or the idea has crossed your mind and you’re looking for next steps, visit Homes.com’s How To section where you can find free, step-by-step guides that will walk you through the entire journey, from home search to closing day.

Shares 0
Lew Sichelman
See more posts by this author

Syndicated newspaper columnist, Lew Sichelman has been covering the housing market and all it entails for more than 50 years. He is an award-winning journalist who worked at two major Washington, D.C. newspapers and is a past president of the National Association of Real Estate Editors.

Leave a Reply

Your email address will not be published. Required fields are marked *