Home Buying Bidding Wars: How to Come Out Victorious!
Competitive home markets like the ones we are seeing all over the country today can cause anxiety, stress and disappointment among homebuyers not prepared to fight for the home of their dreams. With these tips and tricks, you’ll be able to go into the bidding war for your dream home with confidence and beat out the competition!
Tip #1: Trust the Experts!
- Your Lender. Your lender is one of your strongest allies in the bidding war. Veteran lenders have experience dealing with dozens of bidding wars every month. That experience is crucial in providing unbiased opinions since they have seen every type of deal and can counsel on the best options that suit your needs when crafting an offer. The Lender also provides you with your most critical tool: the preapproval letter. Often the lender’s name on the preapproval letter means just as much as the preapproval itself as having a lender with a reputation to get to an on-time closing is often seen as good as an all cash offer. Talk with your lender and understand exactly how much you can offer above asking, what the implications of that offer might have on your loan and how fast your lender can get your loan closed so you can make the most competitive offer possible.
- Real estate agent. Just like your lender, in a highly competitive market, having a seasoned professional as your real estate agent is a must. Someone who can keep their cool under the pressure of an intense bidding war. Your agent can assist in squeezing out important intel from the listing agent (such as finding out what a winning offer looks like). They can also inform you what their other clients are currently doing in the market, whether that’s offering 10% over the asking price or waiving contingencies that the seller may look for.
Tip #2: Know the Strategies!
An informed buyer is a calm buyer, even in a bidding war. Understanding which tools you have in your arsenal can make sure that you do everything in your power to win the bidding war. Let’s look at those tools:
- Know your budget! The biggest mistake most buyers make when entering a bidding war is a failure to understand how high they can go. Without understanding exactly how high a home buyer can afford to bid, you may be setting yourself up to lose before you even get started.
- Know that offering above ask doesn’t mean you are overpaying! The myth in home buying is that if you are buying a home below the asking price, you are getting a good deal, and if you are buying a home above the asking price, you are overpaying. This is false! An asking price is merely an offer set by the seller to invite bids. Some sellers intentionally set low asking prices on their homes to invite a bidding war, whereas other sellers intentionally set asking prices that are way too high with the hopes that one buyer is willing to pay their above market price. You may find yourself offering 20% above the asking price, but you may still be getting a great deal below market price! It’s important to understand this concept when in a bidding war so you don’t underbid the competition because you are fearful to bid over the asking price.
- Know that you can drop contingencies! Including contingencies in an offer to buy a property provide a buyer with opportunities to cancel the purchase contract. Including contingencies in an offer means that the buyer is not 100% committed to buy the property until the contingencies are met, which in turn creates risk for the seller. When a buyer drops contingencies, they are showing a 100% commitment to the seller to buy their property, which strengthens the offer. The most common contingency that serious buyers waive is the appraisal contingency, which means that you will buy the house regardless of what the appraisal shows the value of the house to be. It’s important to talk to your lender and real estate agent to understand all implications of waiving a contingency with any offer. With a strong enough preapproval, you may even be able to waive the financing contingency and come in with an all-cash offer!
- Know your seller! If you can form a personal connection with the seller before the seller makes a decision, it may make the world of difference. The seller may want to sell to someone who loves the home as much as they did. Painting a picture for the seller where they know the house will be in good hands may put you ahead of the pack.
Tip #3: The Type of Loan and the Down Payment Matter
When it comes to a bidding war, the type of loan and the size of your down payment shown on your preapproval letter will be key indicators for the seller. Sellers typically favor bids that come with preapprovals for a conventional loan (as opposed to an FHA loan) and show that the buyer is willing to put a down payment of 20% or more in order to receive financing. However, if you are using a different type of loan or a smaller down payment, you should not be deterred! A preapproval from LendFriend Home Loans, who has a solid reputation to close on time will also show the seller that you want to win the bidding war!
Bidding wars are no laughing matter and it’s important to have the best team on your side. LendFriend Home Loans has been helping our clients buy their dream homes in the most competitive markets for years. LendFriend has proven strategies that will make sure you are victorious. Call now to speak to your licensed LendFriend Home Loans loan officer. LendFriend is here to help and answer any questions you might have!
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