Home Bidding Wars - Preparing for the Fight
The home buying process can be stressful and overwhelming. Compound it with an ongoing shortage of inventory and stiff competition, and you have a pressure cooker for homebuyers. Here are 9 strategies for buyers to navigate an intense Seller’s Market and secure a winning bid.
1) Move Fast
Inventory shortages mean homes are selling quickly. Book a showing the first day the home comes on the market. Likewise, be the first to come to the table with a solid offer. It shows you are serious to the seller and they will be encouraged to stick with you.
2) Be Prepared to Act Immediately
Have a mortgage pre-approval or proof of funds statement ready to go. Prequalification is not enough - ask your loan officer to provide a more detailed pre-approval verifying all your assets and income have been reviewed along with a summary of your financial stability. Choose a mortgage representative that is well-respected in the industry and is known to close swiftly and smoothly. Most lenders will go the extra step and make a courtesy call to the seller’s agent and/or attorney to confirm your credibility and strength as a borrower.
3) Make A Strong Offer
In a balanced market, the asking price acts as a ceiling. Generally, it is a number that reflects a sellers’ aspirations with some room for negotiation. In a Seller’s Market, the asking price is often the floor. You should put your best foot forward immediately and be prepared to offer full list price or above when a property is priced appropriately.
4) Make A Cash Offer
If you have the capability, offer cash. An all-cash offer is very appealing and can lead to a higher likelihood of you winning a bidding war. With a cash offer, there is no mortgage contingency and no worries of the home having to appraise. Normally, a cash sale is a quicker, smoother transaction, that is why it is imperative to have all your financing in order if you are not able to offer cash.
Keep in mind, making a cash offer does not take away your ability to finance. So long as your loan is in place to fund at the closing table, it is cash. The mortgage/appraisal contingency is still waived, so you must be prepared to close on the date specified with your own cash if the loan fails to come through on time.
5) Cap or Waive Appraisal
It is hard to compete with a cash offer, but there are ways to make your offer more attractive. Putting down a larger down payment shows the seller you are a solid buyer and likely to have extra cash to bring to closing if the home does not appraise for the purchase price. You can level the playing field by waiving the appraisal completely, or offer a maximum dollar amount you are willing to cover if the appraisal comes in less than the purchase price.
6) Waive or Limit Home Inspection
In a Seller’s Market, you want to submit an offer without certain contingencies as a strategy to stand out among competing offers. Instead of waiving the home inspection entirely, you can limit the scope of the inspection to major structure, mechanical, electrical, and plumbing or reserve the right to conduct an inspection for the purposes of gathering information. Either way will send a message to the seller that you are not going to nickel and dime them while still protecting yourself if a major defect were found.
7) Timing Flexibility – Move-in Date or A Rent Back
Some sellers are looking for a quick closing and others need a longer closing period or a “rent back” if they are buying and selling a home at the same time. Have your agent communicate that you can close quickly or accommodate a later closing if sellers prefer. A lease-back agreement would mean after you close on the home, the sellers would remain and pay rent until they secure a home. The rent-back not only gives the sellers time to find a home, but it could eliminate them having to include a home sale contingency in their offer which would significantly improve their chances of winning a bid. This flexibility could be as valuable – if not more valuable than a higher bid on the house.
8) Connect with the Seller
Home sellers, especially ones who have lived in a home for a long time can sometimes be swayed by a personal letter. Sellers are appreciative to hear what you love about their home and why. Also, if you notice something you have in common with the sellers, mention it in your letter. If you are both gardeners, artists, or dog lovers, it is a great way to make yourself more relatable, and it will show you wrote it specifically to them. It is certainly worth a try when not much separates your offer from others.
9) Hire an Experienced, Reputable Agent
You not only want to work with an agent who has valuable insight of the local market, but someone who has good relationships and rapport with other agents, lenders, and attorneys. In a competitive market, your agent should contact the listing agent to see if the sellers prefer certain terms – a quick closing, rent-back, etc. They will then be able to use that knowledge to write the best possible offer and advocate effectively on your behalf. In addition, there are several documents that go into an offer and working with an agent who presents a clean package can put you ahead. Organized, professional agents do not like working with somebody who is not. It means more work for them and a higher probability of something going wrong with the deal.
Be Willing to Wait Until Next Year
The fear of missing out can cause buyers to get wrapped up in this frenzied market resulting in overpaying and buyer’s remorse. Do your homework and have a clear picture of your finances, budget, and homeowner goals. Prices continue to grow and even though mortgage rates are still remarkably low (hovering just above 3% on a 30-yr fixed), a slight increase can cost you hundreds of dollars each month. Determine the maximum amount you are willing to bid and be prepared to walk away. Eventually, inventory will improve, and the real estate market will stabilize.
If you would like more detailed information on your local market or would like to determine the value of your home, please give the Paradise Team a call at 732-899-3338.
