When you’ve found that perfect little house you'd like to call your home, the last thing you want is to have to compete with other potential buyers. But bidding wars — especially in hot real estate markets and urban centers — are more of a reality now than ever. So what do you need to know to stand the best chance at signing on the dotted “sold” line? Winning a bidding war is always a roll of the dice, but read on for the real deal on how to prepare before entering the multiple-bid realty trenches.
Get pre-approved for a mortgage so you know the maximal financing available to you. By pre-qualifying for a loan, you’ll not only be aware of your offer’s ultimate ceiling, but you’ll shop around — and bid — accordingly. Speak with a broker to evaluate your options before you settle. A pre-approval from a bank allows you to make an offer without the condition of you arranging financing. A seller wants to see a "FIRM" deal (no conditions at all). The deposit (typically 5% of the purchase price, but flexible) is also a factor with multiple offers, and the sellers like to see the biggest deposit or down payment you can afford, can also help establish to sellers that you’re serious about buying their property.
KNOWLEDGE IS POWER
Do research to learn what the fair market value for any house you’re interested in is considered to be, as well as the fair market value of similar houses that neighbour them. Real estate agents and websites are good resources to get a sense of what's out there. When you find out what comparable houses to the ones you’re looking at are going for, you’ll know if you’re shopping way beyond your means, or well within it. Knowing the current market value a house will fetch may also help you determine what you think other bidders will offer, to in turn establish the bid you want to make. Keep in mind, sometimes they will ask $400,000 for a home that is REALLY worth $650,000. Typically if something seems "too good to be true" it probably is.
KEEP IT CLEAN
Don’t add unusual requests, terms or conditions to your offer, like, for example, buying someone’s home on the basis that you’ll first sell yours. In a multiple offer situation, that will never fly. Additional clauses contingent upon any extenuating circumstances can cause headache to sellers, who may have another offer at the exact price you’re making, but one without any conditions. Which one would you choose? By nixing the contingency plan and making a “clean” or firm offer, you stand a better chance at getting what you want.
DON'T FORGET TO INSPECT
If you are serious about making an offer, protect yourself. i always recommend doing a home inspection on any property. If you are about to make a FIRM deal, there is no baking out if your offer is the chosen one. Instead, take the chance and do a pre-buy home inspection. If it turns out that the house you think you want to buy has a roof that’s about to fall in, better to know before you bid — especially since it might make you look twice at a very similar piece of property around the corner that is going for the same asking price, but with, for example, a recently renovated roof. Consider setting up a home inspection fund in case you end up in a bunch of bidding wars on houses lost to other buyers, since you’ll also have lost your home-inspection fee.
OFFER YOUR MAX
Don’t bid $250,000 on a house whose asking price is $250,000 when you’re in a bidding war and your budget could easily permit you to extend $251,200. It may seem as though bidding an odd number would make little difference, but not only will your bid stand out from the rest, it may just beat an offer that came in at a slightly lower figure with a more common-sounding bid. I always suggest bid your max. I tell my clients, if you found out that house sold for $255,000 tomorrow would you be upset because you would have paid that?". If so, than $255,000 is what your should offer.
REVISTS PRIOR TO THE OFFER
Try to go back to see the house that seemed so magical to you on first viewing more than once — and more than a couple of times, if possible. One reason is that what strikes you as a great first impression may make a poorer second or third impression. Another reason is that more than a few sentimental homeowners have sold their house to a young family that somehow reminds them of themselves when they were starting out. Often, if you are able to meet the homeowner and they establish a connection with you, they may look upon your offer more favorably than that of another bidder — even if your competitor’s bid is higher.
Pull the Trigger
Try to figure out the seller's “trigger” — what it is that would make them sell. If you know that the homeowner has a certain closing date in mind which differs slightly from yours, offer to meet their ideal terms — sometimes this is all it takes to be selected over another bidder, even if the competing offer is higher. If you know the sellers are not looking forward to moving their weighty piano or basement-assembled pool table because it’s expensive to move and the closing date is tight, inquire about buying it to see if that will sweeten the deal.
Hide Your Hand
Bidding wars are a lot like gambling — the stakes are high and a lot of luck is involved. At no point do you ever find out the details of any other offers. You go in totally blind, knowing ONLY how many other offers you are competing against. Rather than trying to figure out how much you can afford to bid without breaking the bank, try to strategically figure out the highest competing bid you’re trying to beat. If you don’t have finely honed psychic abilities, what helps is knowing the true value of the house. Let’s say you’re pre-approved for a $400,000 loan and the house you’re interested in bidding on would, according to your realtor’s estimation, be fairly priced at $350,000 as compared to other similar houses in the same ’hood. If you know that the homeowners are not accepting offers ’til Saturday, and have listed the asking price at $345,000, and then find out Saturday that there are two other offers, think about what those two other offers might be. You may be smart to bid higher than their asking price and more than fair market value but still less than $400,000.
So before you engage in battle, arm yourself with credit pre-approval, a little research, an arsenal of financial strategies, heightened market value awareness and a great realtor. Then cross your fingers and go forth to find your own home sweet home. A realtor will guide you in the right direction.
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