Bidding wars have been on the rise during the pandemic—so much so that Realtor Magazine recently reported that “homebuyers should expect to be in a multiple-offer situation.” Real estate agents around the country cite a mix of low housing inventories and low mortgage rates for the demand. If you’re among those battling for a house, here are 5 tips that may help you win a bidding war.
1. Submit a pre-approval letter with your bid
Pre-approval letters, or verified approval letters, help buyers show they’re serious bidders. Unlike pre-qualification letters which state how much a lender may approve you for on a mortgage, pre-approval letters state how much you’re definitely eligible for. That’s because they’re only provided after a mortgage company has verified your income and assets. With this in hand, sellers may be more confident in your offer than another’s whose financing might fall through. You may also consider getting pre-approved for a bigger loan than you need if you haven’t already, as you’ll see next.
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2. Have extra cash on hand for bidding on a house
Bidding wars often make houses sell for well above their asking price. As The Balance explains, this may make a home’s selling price more than the appraised value that your mortgage company bases your loan amount on. That said, you may need funds on hand to pay the difference between the two. If this strategy isn’t ideal, you could alternatively shop for homes that are under-budget so you have wiggle room when negotiating.
3. Make a personal case with the sellers
A popular bidding war tip is to submit a personal letter with an offer. Sellers may choose you over others in a bidding war if they like why you’re drawn to their house. If you know the property was a family home, for example, you could explain why it would be perfect for yours, Millionacres suggests. Sellers may also appreciate knowing their home is going to someone who’ll value it as much as they did.
4. Be negotiable with contingencies
Contingencies are clauses buyers often add to contracts to protect themselves, but these can be hurdles for sellers. They can include stipulations that repairs must be made or that a home has to close on a particular day. Millionacres notes that you may stand out from the crowd if you’re flexible with these during a bidding war on a house. They explain that if you delay a closing date in a hot market, for example, sellers may respond favorably. You’ll be giving them more time to find their next home in the same tough market.
Discuss pros and cons with your real estate agent as dropping contingencies could hurt you. Many homeowners make contracts contingent on getting financing, for instance. If a home doesn’t appraise and you aren’t protected, you could potentially break your contract. You may also forfeit your earnest money—the deposit buyers put down on houses—in the process.
5. Add a time limit to your bid
This tip may help you avoid a bidding war altogether. Boston-area real estate agent Elias Papdopolous suggests finding a house that has just hit the market and giving sellers 4 to 6 hours to accept a strong offer. If your bid is too good to lose, a seller may accept it without waiting to hear from competitors.
Bear in mind that your real estate market may vary from Papdopolous’. In an interview with Boston.com, he advised that buyers should consult their agents for best recommendations on time limits.
With the right guidance, you may win the war and a great house while staying on budget.