COVID-19 has turned the US housing market into a seller’s market, and as a result many buyers find competition when putting offers on available homes. Often this results in bidding wars, where two (or more) buyers compete for a home by incrementally increasing their bid for the purchase price.
Naturally, the buyer willing to offer the most money often ends up winning out a bidding war. However, buyers do have options to help them win a bidding war even if they aren’t offering the most cash. If you ever find yourself bidding for the home of your dreams but are concerned that you won’t be able to commit enough money to win the bid, consider these four tips to help make your offer stand out from the crowd.
A Quick Warning
Bidding wars, sometimes, are very fast and furious, leading buyers to bid more money than perhaps they actually want to pay for a home. If you find yourself in a bidding war, make sure that you have a clear idea of the highest price you’d be willing to pay and can afford to pay. It does no good to win a bidding war if the purchase price you become committed to is outside your budget or well above market value.
1 — Provide a Pre-approval
A mortgage pre-approval is an offer from a lender to lend you a certain amount of money—it’s as close as you can get to guaranteeing a mortgage without having a purchase contract in place. Providing your pre-approval letter to a seller shows that you are a serious buyer who can get mortgage financing; the lender has little reason to fear that you’ll sign a contract and then be unable to follow through, which would waste a lot of their time. Pre-approval letters mean reliability in the eyes of many sellers.
2 — Consider Dropping Contingencies
A contingency is a legal condition that allows a buyer back out of a purchase contract with little to no consequences. Dropping contingencies can make it difficult for you to back out of purchasing a home without penalties, but it makes the selling process easier and more certain for the seller; again, this means reliability to a lot of sellers, and some sellers will accept a lower, but more reliable, home offer. However, before dropping a contingency, make sure that you’re able to handle the risk involved—for example, if you drop the appraisal contingency and the appraisal comes back lower than the purchase price, you’ll probably need to make up in cash the difference between the appraised value and the purchase price.
3 — Meet the Seller’s Needs
Selling a home isn’t easy, and often sellers find themselves needing something to make their move more convenient. For example, some sellers might want to stay in the home long enough for their kids to finish the school year before moving, even if the closing date comes before then. Other sellers might want to get out of the house now, and won’t be interested if you can’t commit to a quick closing date. Whatever the case, take the time to talk with the sellers and learn what their needs are—if you’re flexible enough to help them out in an individualized way, they’ll often seriously consider your deal before others.
Another source to help you learn your seller’s need—whether your able to speak to the seller or not—is the listing agent.
“Always call the listing agent in advance of writing an offer. See what terms the seller is looking for in regards to possession, title company, etc. You might not get a chance to negotiate, so going in strong will really improve your chances." —Doxie Jelks, GRI of Keller Williams
4 — Add a Personal Touch
Many sellers make deep emotional connections with the home they live in and hope that the home will be treated as kindly as they treated it, and loved as well as they loved it. It’s possible to win over a seller’s heart by penning a genuine personal letter that expresses who you are and your excitement about the home. Don’t be afraid to add some personal details about your life and family or ideas that you have for different rooms in the home. If you’re struggling with medical issues or other expenses that make it difficult to offer a higher purchase price, consider including those in your letter, and the seller might be sympathetic to your situation.
Unfortunately, it’s impossible to be absolutely certain how anything will go in a bidding war, as it’s up to the sellers who they will sell their home to and at what price. But the more tools you have at your disposal, and the more you do to make your offer stand out, the better chance you have of winning a bidding war without having to offer more than you can afford.
« 20-11-02 Announcement—November 2 2020 Program Guidelines Update