It’s spring, which means the housing market is moving into full swing. This means that people are buying houses, and the competition is fierce. You can bet that because you’re looking for your dream house that there are plenty of other potential homebuyers doing the exact same. This can mean that you’ll be facing a multiple offer situation which means one thing: a bidding war.
What creates a hot housing market? According to Realty Check on CNBC, it all stems from low inventory, or a short supply of houses for sale on the market. And this is happening all across the country. Almost half of the homes being sold in the last few months had multiple offers, and a third of homes sold in March sold above asking price. In other words, if you’re looking at buying a house this spring, you’ll need to be prepared for a bidding war.
Knowing How to Win
Just because you’ll likely be facing competition from other buyers, a bidding war doesn’t meant that you’ll lose out on the house of your dreams. You just have to know how to make your offer stand out above the rest, so you can win that bidding war, and have the seller accept your offer.
Step #1- Cash is King
You’ll hear this all of the time. Before you even start looking at buying a house, get preapproved for a mortgage. And this is especially true in today’s hot housing market. Because the market is still recovering, sellers can be scared of a buyer’s financing falling flat. Get preapproved, and you’ll let the seller know that you have the financing ready to go.
Of course, cash will always be king, and the more cash you can offer the better. If an appraisal comes in below their asking price, the bank won’t lend above the appraisal. If you have enough cash, you can cover the difference. The seller is looking for buyers that can do that. So, if you can, get as much cash together as you can. This will let the seller know you’re serious, and can compensate for a low appraisal.
Step #2- Your First Offer Counts
Sometimes, the first offer is the only chance that you’ll get. If you get outbid immediately, that’s it. You’re done, and have to go back to finding another house. Make your first offer matter, and don’t lowball the seller. You want the seller to know that you’re serious, and making a strong first offer does just that. If you don’t want to bid too high, come in right around the seller’s asking price. They’ll know that you mean business, and they will be more willing to negotiate, or just accept your offer.
Step #3- Add an Escalation Clause
This is an excellent bidding strategy, and it lets you keep bidding without having to keep negotiating. Essentially, an escalation clause is when you, as the buyer, agree to up your bid in response to other bids. Of course, only go up as high as you can afford, and make sure the escalation clause states that your bid will only get a step above a competing offer. That way, if you are willing to go up to $250,000, but a competing offer is only $210,000, your offer will be $211,000. You don’t want to end up paying up to your max amount if you don’t have to.
Step #4- Inspect Before You Make an Offer
Ask the seller to let you do a home inspection before you make an offer. It can cost you quite a bit of money upfront, in the ballpark of a couple hundred dollars, but in a really hot market it can make all of the difference. If the seller agrees, this means that you won’t have to have a contingency to walk away in your offer. Of course, if the inspection shows something big, you’ll know before you even make an offer. This makes it better for everyone involved, and the seller is more likely to accept an offer without any contingencies.
Step #5- Be Smart, but Show Your Love
Never let emotions control your decisions. You might absolutely love the house, but that doesn’t mean you should overpay. Do your research, use your real estate agent, and be smart about your offer and what you’re paying.
If the price is good, and everything else, like the neighborhood, is perfect, then go for it. And show the seller how much you love the house. Write a short letter saying what you like about the house, and how you’ll love living in it. You don’t want emotions to rule the purchase, but they can help you win the bid and get your dream home.