How to win a bidding war when buying a house
You’ve done your shopping around and settled on your dream home. Don’t let it slip out of your hands due to another buyer edging you out! Discover all the things you can consider in order to win a bidding war when buying a house.
Make an aggressive offer
The highest offer with the best terms usually wins, but how do you know whether you’ve got everyone beat? If you really want a particular house in a strong market where there’s likely to be a bit of competition, you want to come out with your best, most aggressive number.
Certainly, don’t over extend yourself, but don’t hold back and wait for a counter if the competition is stiff. You’ll want to get in the game from the outset and bid high.
Nothing smells better to a seller than a pile of cash and not having to wonder if the buyer will be able to get a mortgage. Cash means a fast close and less hassle. The seller can literally take the money and run. A cash offer is often one of the stronger tools in the toolbox for beating out the competition.
Now, most people don’t have hundreds of thousands of dollars of cash lying around to make a cash offer. Never fear, there are other methods you can use. Read on.
Use an escalation clause
An escalation clause is a way for a buyer to offer more money in steps, contingent upon other offers coming in, with a cap on the maximum amount they want to bid. For example, your escalation clause could offer $1,000 over the best offer, up to a certain number. This can let you outbid someone without offering over what it takes to have the highest bid. Bid, but not overbid.
However, escalation clauses have pros and cons in the negotiation process. Read about what an escalation clause is, how best to use them and what you should look out for.
Shorten and/or simplify the closing process
What’s valuable besides money? Time. If you can shorten the time it takes to close with either or both of the following strategies, you can better your chances to win a bidding war when buying a house.
Forgo an inspection
Risky, yes. What if an inspection found tens of thousands of dollars in foundation repairs needed? Termites? Water damage? Yet, forgoing the inspection is a powerful negotiation tool as the inspection process and fixing the issues found in an inspection can lead to a drawn out closing process. Not to mention haggling over items to fix.
You can be a dream buyer by forgoing the inspection, but it’s not for the faint of heart or light of pocket book. Who knows what will be uncovered when you’re the owner? Be aware that some lenders require an inspection, so you want to make sure that you don’t offer something that puts your loan in jeopardy.
Forgo a mortgage contingency
For most mere mortals, a mortgage is a must. For a seller, though, a mortgage contingency adds a high level of risk to the sale – if the home doesn’t appraise at a level high enough for the buyer to qualify for a mortgage, the deal is lost. A mortgage contingency says that your offer is valid as long as you are able to get a mortgage. Many factors can play into a buyer not getting a mortgage. Things like credit slipping unexpectedly, not coming up with enough of a down payment (especially if an appraisal is low so that more down payment is necessary), or issues with the house itself.
Getting rid of a mortgage contingency sounds crazy – if you can’t get your mortgage, you lose your deposit, usually 5% of the offer price – but if you can bridge the gap between appraisal and mortgage and you are fully pre-approved for a mortgage, you take quite a bit of risk out of it.
Write a letter to the seller
Sellers are human beings with lots of emotions around selling their home. Especially in tight knit communities, sellers sometimes care that the home is going to someone who is going to be a good neighbor. A seller could easily be persuaded to go with the offer that’s a close second, for example, if they had good feelings about the buyer, even if it meant losing out on a couple thousand dollars. Find out the elements of writing an effective letter to a seller that gets you the house.
Be cooperative on the seller’s ideal closing date
It could be that the seller wants to move quickly, or, may want to stay in the home for a few months. Best to find out as soon as you can what their preference is and make that part of your offer.