How to win a bidding war on a property with multiple offers?
Are there multiple bids on your favorite property? Winning a bidding war on a home is not easy when the place is highly desirable. The real estate market constantly shifts like every other sector. But in a seller’s market that can be challenging for buyers.
When there is a high demand for a property, low inventory has given rise to bidding wars on properties. If you are planning on buying a home in a competitive market, there is a high chance that you will run into multiple competing offers.
Though it is not something that a buyer looks forward to it is not the end of the world. If you put in some thought and plan ahead, there are good chances of winning a bidding war. Keep a positive and open mind, take the proper steps, and you might end up being a homeowner.
There are several techniques and strategies to win a bidding war, but the key is to figure out a plan that aligns with your seller’s interests.
- Find out what you are up against
This is the part where you research the property and perform a background check on your seller. So what exactly does research include?
Close surveillance of the property and the neighborhood – get to know about the properties’ market value in your chosen community. Find out how many other properties in the area are selling for. If similar properties are moving slowly or are getting sold at a price below the asking rate, then you are in luck and in a stronger position. Also, it helps to know under what circumstances the seller had to list the property. If they require money immediately, you can offer a rate accordingly.
- Get Pre-Approved for a Home Mortgage Loan
If you are an intelligent buyer, the first step you would take is to up your chances of getting a home loan. So before making an offer, ensure that you get pre-approved by your lender. Sellers are not keen on accepting submissions made by buyers who don’t have a pre-approval because it is risky. Many sales deals go down the drain at the last minute due to the denial of a mortgage. If you are serious about buying a property with multiple offers, you cannot overlook the need for an underwritten pre-approval for a home loan. An under-written approval can be sanctioned within 24 hours; it lets the seller know of the exact amount you will receive for buying a house. We strongly recommend sharing the pre-approval with the sellers in a competitive market to let them know how eager and serious you are about buying their property.
- You need to have a genius real estate expert by your side
Whether you are a first-time buyer or an expert, the process of buying a property is stressful and overwhelming. But if you have an experienced and smart real estate agent on your side, the process becomes smooth and comfortable. A real estate agent is needed, especially if you are moving into an unfamiliar area or to a competitive and larger market.
The buyer’s agent offers valuable tips and proper insights into each neighborhood. They can educate you on the pros and cons of a specific area, helping you narrow down your search. These agents are also well aware of the property values of a place and the frequency of sales in the area. They are the best people who can help you come up with the perfect price for a particular property.
- Offer an irresistible price
To offer the highest price is the sensible and most essential thing to do when trying to win a bidding war! Outbid your competitors, and the place is yours. If you can draw in more cash than any other bidders, the seller will accept your offer. If you are worried about over-paying, you can consider an ESCALATION CLAUSE.
This is how the escalation clause works – Suppose you want to make an offer on a property for, say, $100,000. And if you feel there are chances of getting outbid by your competitors, you can get your agent to include an escalation clause in your offer letter. The clause would say that you are willing to pay a specific amount of money above any other offer but within your budget limit. For instance, in the above case, you could offer to outbid other buyers by $1000 but only up to 150,000. This way, you can stay ahead of others without offering too much.
- Waive the inspection contingency
Contingencies address unforeseen problems and also delay the buying process due to the need for negotiations. Contingencies are beneficial to the buyer as it protects the buyer’s interest. But for the seller, it is a nuisance because it prolongs the property sales. Suppose you feel that the seller is in a hurry to dispose of the property. In that case, you can get rid of unnecessary contingencies. Home inspection contingency protects the buyer from spending a great deal of money on undetected repairs, so removing it might seem like a significant risk. But if you feel that the property you are eyeing is going to attract many bidders, you can set an appointment for a home inspection before you submit the offer letter. So then you will know what you are getting into and so can remove the inspection contingency. This technique will drastically increase your chances of your offer getting accepted.
- Determine how much earnest money to offer
An earnest deposit builds the seller’s confidence in the buyer. The more you put in, the more your chances of bagging the deal. Usually, the customary amount is 1-3% of the purchase price. Considering the current rate of properties, you would have to spend somewhere between $500 and $1000.
If you can, it helps to offer a higher amount as an earnest deposit. It lets the seller know that you are very serious about making a purchase. In competitive markets, earnest deposits can go as high as 10%.
However, don’t forget that there is a risk in this case. If you have to back out of the deal for some reason, you will lose the earnest deposit.
- If Possible, Make An Offer In Cash
Everyone prefers liquid cash over anything else. It is appealing to home sellers as well. If you are not using a lender to finance your purchase, there won’t be a need for financial contingency also, so the seller will have complete assurance that you will not pull out of the deal due to any financial reasons. When you pay in cash, the process will not include too many formalities, and the closing will happen a lot quicker. So it’s a smoother experience for everyone.
Most buyers don’t have the source to make an all-cash offer, so your offer will stand out. By offering to buy the property in cash, you can take over the place as soon as possible without any third-party denials or any roadblocks.
- Don’t Limit the Sellers to a Time period
Restricting the seller to a timeline can put extra stress on them and make them feel anxious and overwhelmed. Give them enough time and flexibility to move out at their convenience. Build a personal relationship with the seller instead of being aggressive. As a buyer, you can put forward a rent-back agreement in the offer letter. This means you can rent out the purchased property to the seller and give them enough time to find a new place. A little empathy and compassion is all you need to get your offer to charm the seller.
- Get to know the seller’s desired date for closing and offer it to them
A golden rule of making an offer is to give the sellers what they want, even if it is to make closing on their desired date. The closing date is what all sellers look forward to; they don’t want to deal with lengthy negotiations and delays.
If your seller is selling and buying properties simultaneously, the closing date becomes even more significant. Coordinating buying and selling can become overwhelming, so giving the seller the close date they want often determines if the buyer is going to get the house or not.
Finally, the key to making a unique offer and trying to win a war is to put your best foot forward. If your offer doesn’t get accepted, don’t sweat on it since many properties will come along.