Housing market too hot? Six ways to win a bidding war.
If you鈥檙e shopping for a house in one of the country鈥檚 hottest real estate markets, where the supply of聽houses is low and demand is high, you may聽find yourself in a bidding war, with multiple offers pushing prices ever higher.
Add low聽聽into the mix, and buying a home can feel like you鈥檙e in the middle of 鈥淭he Hunger Games,鈥� competing in聽a fierce battle to win the house you love. At least聽you won鈥檛 perish in this process, but it鈥檚 certainly easy to get discouraged if you鈥檙e edged out multiple times when trying to聽.
The best move you can make before writing any offers is to hire an experienced, professional聽real estate agent. Having someone on your side who knows your local market thoroughly聽鈥斅燼nd can guide you through these sometimes聽tough negotiations 鈥� means you鈥檝e got heavy聽backup when you enter a bidding war.
We talked to some real estate agents from around the country about聽strategies to聽help you come out on top.
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1. Get a preapproval letter from your lender
Getting pre-qualified, which merely confirms your income and how much a bank might be willing to lend you based on your credit profile, isn鈥檛 the same as having聽for a specific purchase offer.
You can up your chances of beating out other buyers by including a letter from your bank stating that your lender has underwritten your application and it鈥檚 simply pending appraisal, says Daniel Blatman, a broker with Douglas Elliman Realty in New York City.
Blatman suggests submitting聽all of your financing documentation to your lender before looking at homes and certainly before writing聽any offers. That way you can pounce quickly when you find the home you want, and avoid the stress of submitting preapproval paperwork and writing an offer at the same time.
2. Use an escalation clause
If you鈥檙e in a multiple-bid situation, you can strengthen聽your offer by using what鈥檚 called an escalation clause. It鈥檚 essentially a contract addendum that states you鈥檙e willing to increase your offer incrementally up to a certain limit if other offers come in that match聽or top聽your initial bid.
For example, say the seller鈥檚 asking price is $200,000. Your聽聽would write your offer to state: 鈥淢y initial bid is $200,000 with an escalation of $2,000 over competing offers up to $210,000,鈥� or something to that effect. If another bidder聽offered more than $210,000, however, you鈥檇 be out of the running.
An escalation clause is a smart strategy that shows strong interest, but it鈥檚 important to stay within your budget聽and be willing to walk away if聽bidding goes beyond your limit, says Bruce Ailion, a real estate agent with RE/MAX Town & Country in Atlanta.
When using an escalation clause, 鈥渙ffering 1% above the purchase price is a guide, especially if you鈥檙e in love with the home and you鈥檙e not willing to lose it over that 1% difference,鈥� Ailion says. 鈥淵ou can also allow your bid to be held as a backup offer for up to 20 days if the higher bidder makes an irrational offer and doesn鈥檛 deliver earnest money or stops payment.鈥�
3. Limit the contingencies
Sellers have the upper hand in a multiple-bid situation, and they want offers that are clean and concise. If you know other bids are coming in and you really want a home, avoid putting in too many contingencies or making too many demands, Ailion says.
鈥淒on鈥檛 include things like needing to wait for a spouse or partner鈥檚 approval, asking the seller to purchase a home warranty or requesting that the seller leaves or repairs certain items,鈥� Ailion says. 鈥淵ou also don鈥檛 want to ask the seller to pay your closing costs; find an affordable attorney or title company to represent you. Having too many of these items in your contract will make it likely that a seller tells you 鈥榥o鈥� over another offer.鈥�
4. Be flexible on the closing
Let鈥檚 say someone outbids you by a few thousand dollars, but you鈥檙e willing to give the聽seller more time to move out. That flexibility聽can make聽you the front-runner in a multiple-bid scenario. Sissy Lappin, owner of Lappin Properties in Houston, says she鈥檚 seen聽buyers snag聽their dream homes聽even when outbid because they either let the sellers rent back the home for a period or pushed back聽the closing date.
Extending that courtesy can make your offer more attractive to a seller who might otherwise have to spend more on moving expenses or be crunched for time to find another home.
On the other hand, if a home is already vacant, sometimes you can win the seller over by offering to close in a shorter time. Ailion says that buyers who offer to close quickly 鈥� sometimes within 14 days 鈥� can edge out buyers who haven鈥檛 been聽preapproved or have to sell their current home to buy a new one. (Keep in mind, though, that a new regulation known as the聽聽has slowed down closings for some lenders.)
鈥淪ellers are concerned about liability, theft, holding costs and hazards with a vacant home,鈥� Ailion says. 鈥淥ffer to close at the seller鈥檚 convenience with occupied homes. Be flexible if the seller needs to find a new home; provide them that time.鈥�
5. Write a 鈥榣ove letter鈥� to the seller
With so much fierce competition out there, sometimes appealing to the heart can make your offer stand out. That鈥檚 why more and more real estate agents are suggesting that buyers write a heartfelt letter to sellers explaining why they want the house.
鈥淚 definitely ask my buyers to write a letter and explain how much it would mean to them to get the house,鈥� says real estate agent Eileen O鈥橰eilly with Keller Williams Realty in Burlingame, California. 鈥淚 even have them add a couple of photos of them and their kids or pets. I鈥檝e had selling agents tell me that it was the letter and the complete offer packet that won my clients the listing.鈥�
Other Realtors agree.
鈥淎 love letter definitely helps,鈥� says Paige Martin, a Realtor with Keller Williams Realty in Houston. 鈥淓ven more important is your online reputation as a buyer. Most good seller鈥檚 agents will google聽potential buyers to see if they鈥檝e been in a lot of conflicts or if they have a stable job. While this won鈥檛 overcome a large difference (in your bidding price), it will definitely help at the margin.鈥�
6. Don鈥檛 count yourself out after聽a bidding war
If you lose a bidding war and the seller chooses another bid, have your agent keep in touch if you鈥檙e still interested in the house. If a buyer offered way over the asking price, the deal could fall apart on appraisal or the buyer might be bidding on multiple聽properties to see which one sticks, Blatman says.
鈥淭he highest offer doesn鈥檛 always mean it鈥檚 the best one,鈥� Blatman says.
Lappin has seen it time and time again: 鈥淐ontracts that come in way over asking price have a very high cancellation rate,鈥� she says. 鈥淲hen that happens, (the seller) loses the momentum of being the new home on the market.鈥� That could make your offer attractive again.
Plan ahead to get聽the edge
The homebuying process can feel cutthroat at times, but you鈥檒l be in a better聽position to win the house you want with a knowledgeable Realtor to help you write a strong, competitive offer that follows these strategies.
You may well聽lose one or two bidding wars before you win one; it鈥檚 almost a rite of passage for homebuyers. Good luck on your home search, and may the odds be ever in your favor!
Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email:dkearns@nerdwallet.com. Twitter:聽.
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