If you’re looking to buy a house right now, it’s safe to say that you’re going to see more competition than normal. But, if you think winning a bidding war is all about the bottom dollar, there may be more to it than you think.
While you’re not the only one in the bidding war, there are ways you can gain a competitive edge over others who try to outbid you on your dream home.
When housing inventory is low but demand is high, you get what we call a seller’s market. Any of the following could signal a seller’s market:
In a sellers’ market, home buyers are likely to compete over homes, driving the prices up. This couple “bid $100,000 over asking on a house listed at $699,000. And they still didn't get it.” And they’re not an outlier in today’s housing market.
First-time homebuyers face the challenge of choosing the right house – normally a thoughtful process of due diligence – at the break-neck speed of bidding wars and out-pricing offers. However, through forward planning, you can position yourself to be in a better financial position than other homebuyers who know their way around a hot market.
So how can you compete with other buyers for the house of your dreams? As buyers in a sellers' market, your best bet is to streamline your bidding, inspection, and closing process to win sellers, top other bidders. and quickly dive into lender-approved negotiations with your chosen seller. Use these techniques to boost your home-buying strategy and compete in a bidding war.
Saving for a house is a calculated process. It’s important to have a firm grasp of how much you’re able to save each month and therefore how long it’ll take to save a down payment for your target home price range.
Here are a couple ways you can start preparing your savings:
It’s important to know where you’ll draw a line financially before you fall in love with a property or get carried away in a bidding war.
Define the largest home price you could possibly handle, then set your target listing price based on the regional buying trends. Be prepared to set your bar below your max just in case a house you love enters a bidding war, and you need to increase your bid.
Always be ready to walk away and find another home within your price range, if necessary. Your future financial happiness matters as much as the quality of the house you buy.
Remember that a higher price doesn't just mean a bigger mortgage; it also means a larger down payment, a higher interest rate, and the possibility of /or PMI (private mortgage insurance) getting tacked on because you become unable to put down 20% for your downpayment.
In a sellers' market, there is no time to waste on getting the bank's approval after bidding.
Sellers are looking for buyers who are ready to make lender-backed offers, then negotiate and close quickly. The best route to this is a pre-approved loan.
Sellers often sort through numerous bids quickly based on whether buyer finances are ready with a pre-approved mortgage. This allows negotiations to start immediately and for sellers to make their decisions based on concrete pre-approved numbers that won't change when buyers talk to the bank.
So find the right lender, go through the application process, and get your maximum buying price pre-approved.
A pre-approved mortgage is valid for a set amount of time, usually two to three months, and can be activated for any quantity up to the approved amount.
A good mortgage lender can custom-tailor your pre-approval letter for the property and bid you’re making so you don't have to reveal all your financial cards at once, but still show you’re financially ready to buy.
When the housing market is hot, it helps to choose your favorite houses and set aside those that have deal-breakers quickly. Because the market is moving fast, you'll have less time to tour, contemplate, and make up your mind. Some have even resorted to buying a home unseen in order to act fast and avoid losing out.
You'll want to take care of your inspection and decide how you feel about the maintenance level quickly as well.
So before you start house shopping, know your nice-to-haves (like a large kitchen island), your must-haves (like the number of bedrooms you need or a home office), and your deal-breakers (like the amount of updates you’ll have to do or high HOA fees). This will help you decide on your bid-worthy houses quickly so you can dive into the competition.
When in doubt (or even when you’re not in doubt) working with an experienced real estate agent is an absolute must.
In order to compete in a bidding war, your real estate agent will have to be experienced, extremely knowledgeable, and readily available.
Be sure that your agent is an amazing communicator and that they will be dedicated to you, especially during the time when you’re ready to start making offers.
It’s important to know how hot the housing market is in your area and get ready to bid accordingly. Low bids have a time and place, but a competitive sellers' market isn't one of them.
Meeting the seller's listing price is a respectful bid and if you expect competition, bid a little higher.
If there are already competing bids, do your best to beat those bids by at least a few hundred, if not a competitive thousand dollar margin to discourage a follow-up competing bid.
A good real estate agent will coach you through the bidding and offer process while also being in communication with the listing agent. They'll let you know how many are currently making offers on the house and if yours holds any weight against the competition.
When you’re in a bidding war, escalate carefully. A good standard is about $1000 more per additional bid unless the bidding already has an escalation pace below or slightly above this amount.
For an intense bidding war on a lower-priced house, a $500 increase per bid may be appropriate. Don't jump far ahead of the other bidders in case you accidentally over-bid and pay more than you need to.
As mentioned earlier, it’s important to know the state of the market in your specific area and your real estate agent should be able to let you know what to expect.
As always, remember to know your limits and the price point where you’ll need to drop out.
From there, bid in competitive intervals until you win the house or hit your max.
Did you know you can offer your sellers more than money? Seller concessions are usually terms offered by sellers during the negotiations to entice buyers. Reverse this trend by offering your sellers tempting concessions in negotiations instead. Some examples are to offer them leaseback time or to cover some of the seller-side closing costs.
While some agents say the tactic is a tried and true way to win a bidding war, other agents, following recent guidance from NAR (the National Association of Realtors), won't deliver or accept love letters anymore as they’ve decided that it raises fair housing concerns.
Bidding can pose some danger, if you're not careful.
During a bidding war season, it's best to avoid falling in love with any one house, just in case, because you can victoriously win a bidding war within your budget or push your budget too far and wind up without funds after winning and completing the house purchase.
Sometimes, it's better to leave a now-overbid house to those whose budgets can absorb the serious added cost.
If the housing market has pushed home prices too high for your savings, don't worry! There's still time to save while the interest rates are low, and the housing market will have time to settle and grow inventory. In the meantime, check out the Homebuyer App, a mobile app that helps you save more diligently even match your savings dollar for dollar.