5 Helpful Tips for Winning Real Estate Bidding War
A real estate bidding war has become one of the latest trends in the housing market. Since housing demand has exceeded the supply, most homes end up in a bidding war. A bidding war occurs when multiple buyers compete to purchase the same property by offering more money and other rewards. However, even if other buyers are bidding on the same house as you, it doesn’t mean you can’t have your offer accepted.
You can use a few buyer tactics to win a bidding war, including raising the price or offering concessions such as skipping the inspection. Read on to learn a few tips for winning a real estate bidding war, and find out how it works.
How does a bidding war work?
Usually, in a neutral housing market, an offer to purchase a home typically consists of a few elements including offer price, deposit, financing, closing costs, contingencies, and home warranty. However, in a bidding war, things are a bit different. For example, when properties are receiving multiple offers and selling the same day they hit the market, real estate brokerages usually submit an initial offer on a property.
Buyers need to put everything on the table if they want to be accepted. This means including an escalation clause to an offer. This clause says that the buyer will automatically increase their bid above the highest competing bid. Other key elements in a bidding war include financing, closing date, closing costs, contingencies, and home warranty. Note that there are a few pros and cons in offering an escalation clause that you need to look out for.
Tips for winning a bidding war
Know what the seller wants
Keep in mind that the seller will decide which offer to accept, so make sure you know what they want. Whether they want a quick closing or they want to stay in their home for longer than normal. Think about whether they’re concerned the appraisal won’t support the selling price. Meet with them and ask all necessary questions so you can be ahead in the bidding war.
Get preapproval for a mortgage
Before you start shopping for a new property, make sure you get preapproval for a mortgage. This offers a precise mortgage amount based on your bank statements, credit score, and other official documentation. A preapproval tells the seller that you’re serious about purchasing their property, which means your offer will have more chance of being accepted.
Offer the highest price
When someone thinks about winning a bidding war, offering the highest price usually comes to mind. Rightfully so, one of the best ways of any offer situation is to offer the highest price. This means if you want to win a bidding war in real estate, you should outbid the competition by putting in a little more money than the other person. You’ll probably be the top choice of the seller. Note that a higher offer holds a lot of weight when it comes to decision-making, and homeowners usually want to make as much money as possible when selling their property.
Drop the contingencies
As sellers don’t want their property to sit on the housing market for a long time, you might want to drop your contingencies to make your offer much stronger. Contingencies are specific conditions that must be met to close a deal on a property. Usually, when a buyer has a contingency in their offer it means that the home must meet your offered price during the appraisal. By dropping the contingency, you’re telling the seller that you’re willing to pay an extra amount of cash at closing if the property appraises for less than the agreed-upon price. However, note that you’ll still need the appraisal contingency because it protects you financially when you make an offer on a property.
Appraisal gap coverage
Removing the appraisal contingency may be a good move but you can go one step further and offer an appraisal gap guarantee. This gap is the difference between what you have agreed to pay for the property and what the appraiser says it’s worth. By offering appraisal gap coverage, you’re letting the seller know that even if the negotiated price exceeds the home’s appraised value, you will make up for the difference.
Deciding on which bidding war strategy to use when purchasing a property can be quite difficult, so make sure you consult with a real estate agent to make the right move. If you want to win a bidding war on a property you like, you might want to put everything on the line and don’t look back. Have a good strategy and be confident that you will win the bidding war.