If you’re shopping for a house in one of the country’s hottest real
estate markets, where the supply of houses is low and demand is high,
you may find yourself in a bidding war, with multiple offers pushing
prices ever higher.
Add low mortgage rates into the mix, and buying a
home can feel like you’re in the middle of “The Hunger Games,”
competing in a fierce battle to win the house you love. At least you
won’t perish in this process, but it’s certainly easy to get discouraged
if you’re edged out multiple times when trying to buy a home.
The best move you can make before writing any offers is to hire an experienced, professional real estate agent.
Having someone on your side who knows your local market thoroughly — and can guide you through these sometimes tough negotiations — means you’ve got heavy backup when you enter a bidding war.
We talked to some real estate agents from around the country about strategies to help you come out on top.
1)
Check Rates Get a preapproval letter from your lender. Getting
pre-qualified, which merely confirms your income and how much a bank
might be willing to lend you based on your credit profile, isn’t the
same as having preapproval for a specific purchase offer.
You can up
your chances of beating out other buyers by including a letter from your
bank stating that your lender has underwritten your application and
it’s simply pending appraisal.
Submitting all of your financing
documentation to your lender before looking at homes and certainly
before writing any offers. That way you can pounce quickly when you find
the home you want, and avoid the stress of submitting preapproval
paperwork and writing an offer at the same time.
2.
Use an escalation clause. If you’re in a multiple-bid situation, you
can strengthen your offer by using what’s called an escalation clause.
It’s essentially a contract addendum that states you’re willing to
increase your offer incrementally up to a certain limit if other offers
come in that match or top your initial bid.
For example, say the seller’s asking price is $200,000.
Your real estate agent would
write your offer to state: “My initial bid is $200,000 with an
escalation of $2,000 over competing offers up to $210,000,” or something
to that effect. If another bidder offered more than $210,000, however,
you’d be out of the running.
An escalation clause is a smart strategy
that shows strong interest, but it’s important to stay within your
budget and be willing to walk away if bidding goes beyond your limit.
When
using an escalation clause, offering 1% above the purchase price is a
guide, especially if you’re in love with the home and you’re not willing
to lose it over that 1% difference. You can also allow your bid to be
held as a backup offer for up to 20 days if the higher bidder makes an
irrational offer and doesn’t deliver earnest money or stops payment.”
3.
Limit the contingencies. Sellers have the upper hand in a multiple-bid
situation, and they want offers that are clean and concise. If you know
other bids are coming in and you really want a home, avoid putting in
too many contingencies or making too many demands.
Don’t include
things like needing to wait for a spouse or partner’s approval, asking
the seller to purchase a home warranty or requesting that the seller
leaves or repairs certain items. You also don’t want to ask the seller
to pay your closing costs; find an affordable attorney or title company
to represent you. Having too many of these items in your contract will
make it likely that a seller tells you ‘no’ over another offer.”
4.
Be flexible on the closing. Let’s say someone outbids you by a few
thousand dollars, but you’re willing to give the seller more time to
move out. That flexibility can make you the front-runner in a
multiple-bid scenario. I've seen buyers snag their dream homes even when
outbid because they either let the sellers rent back the home for a
period or pushed back the closing date.
Extending that courtesy can
make your offer more attractive to a seller who might otherwise have to
spend more on moving expenses or be crunched for time to find another
home.
On the other hand, if a home is already vacant, sometimes you
can win the seller over by offering to close in a shorter time. Buyers
who offer to close quickly — sometimes within 14 days — can edge out
buyers who haven’t been preapproved or have to sell their current home
to buy a new one. (Keep in mind, though, that a new regulation known as
the TILA-RESPA Integrated Disclosure rule has slowed down closings for
some lenders.)
Sellers are concerned about liability, theft, holding
costs and hazards with a vacant home . Offer to close at the seller’s
convenience with occupied homes. Be flexible if the seller needs to find
a new home; provide them that time.
5. Write a ‘love letter’ to the
seller. With so much fierce competition out there, sometimes appealing
to the heart can make your offer stand out. That’s why more and more
real estate agents are suggesting that buyers write a heartfelt letter
to sellers explaining why they want the house.
I definitely ask my
buyers to write a letter and explain how much it would mean to them to
get the house. I even have them add a couple of photos of them and their
kids or pets. I’ve had selling agents tell me that it was the letter
and the complete offer packet that won my clients the listing.
Even
more important is your online reputation as a buyer. Most good seller’s
agents will Google potential buyers to see if they’ve been in a lot of
conflicts or if they have a stable job. While this won’t overcome a
large difference [in your bidding price], it will definitely help at the
margin.
6. Don’t count yourself out after a bidding war. If you lose
a bidding war and the seller chooses another bid, have your agent keep
in touch if you’re still interested in the house. If a buyer offered way
over the asking price, the deal could fall apart on appraisal or the
buyer might be bidding on multiple properties to see which one sticks.
The highest offer doesn’t always mean it’s the best one.
Contracts
that come in way over asking price have a very high cancellation rate.
When that happens, [the seller] loses the momentum of being the new home
on the market.That could make your offer attractive again.
Plan
ahead to get the edge. The homebuying process can feel cutthroat at
times, but you’ll be in a better position to win the house you want with
a
knowledgeable Broker to help you write a strong, competitive offer that follows these strategies.
You
may well lose one or two bidding wars before you win one; it’s almost a
rite of passage for homebuyers. Good luck on your home search, and may
the odds be ever in your favor!
Ron Goldstein,MBA
VP of Sales Jameson Sotheby's International Realty Gold Coast Office
(c)
312-771-7190 chicagoluxuryrealty.com and
stpeteluxuryrealty.com
Premier Sotheby's- St. Pete/Sarasota