The good news- you’ve found the perfect home, and are ready to move in as soon as possible. The bad news- you’re now in competition with a heap of other buyers, all bidding for the same home. With housing inventory at record lows this year, more and more homes are landing in bidding wars amongst interested buyers. These situations can be very stressful, and many buyers could decide it’s just not worth it. But don’t despair yet- there are some strategies that could help buyers get the edge in these competitions.
1. Pay Cash
This option will not be available to everyone, so if this is not a realistic strategy for you, please read on. However, if you do have the cash to cover the purchase price of the home, this is a great option that will give you an immediate edge in a seller’s market. If you don’t need to apply for a mortgage, your offer will have a greater chance jumping to the top of the list. Any time a lender or third party gets involved, there is risk. Paying up front in cash will eliminate that risk, as well as show the seller you mean business. Cash sales saves time for everyone and the home sale can close much sooner because there’s no underwriting process to wait on. If the seller wants to sell their home as soon as possible, a cash offer can be very powerful in influencing their decision.
2. Be Prepared to Show Your Pre-Approval Letter
If strategy #1 does not apply to you, be sure to get pre-approved for a mortgage before you start your home search. Keep in mind that the prequalification process is different than a pre-approval letter. The prequalification process only gives you an estimate of the loan you’ll receive based on verbal confirmations of income and other details. A pre-approval letter gives you a precise mortgage amount based off your official documentation. A pre-approval letter will give the seller peace of mind that you will not run into any trouble getting a mortgage to buy the property. Without pre-approval, it’s very possible a seller will skip over your offer entirely in favor of another buyer.
3. Increase Your Offer
It probably goes without saying that traditionally, the best way to win a bidding war is to offer the most money. However, the highest offer isn’t always the one the seller chooses – so you need to stay strategic. In absolutely no circumstance, though, should you increase your offer if it’s going against your budget. Bidding wars can get frustrating and emotional, but you must be able to have a clear mind and know when to accept the loss and walk away. Always keep in mind the maximum amount you can afford, and stick to that number. It’s easy to be swept up in the chaos of a bidding war – not only because you love the home, but also if you’ve lost out on a few other homes previously. However, that elation will quickly pass if you over-extend yourself and cause financial difficulties down the line.
4. Add an Escalation Clause
You may find yourself in a position where you want to make a high enough offer on the home you like, but you’re not sure about the competition or may be worried about overpaying for the home. Escalation clauses help you put in a higher offer only if you face competition on a home’s price. The escalation clause is an addendum to your offer that states you’re willing to go up by X amount if another buyer matches your offer. Some believe that an escalation clause can show a seller your hand in a way you might not want – informing the seller just how interested you are and willing to spend on the property. However, if your end goal is to win a bidding war on your dream home, there’s nothing wrong with putting it all on the table and letting a seller know how serious you are.
5. Make it Personal
While money is usually the main deciding factor in winning a bidding war, sometimes you can win over sellers by humanizing your offer with a personal letter. Think about the great memories you’ve had in your current space. Many sellers love the idea of passing their home to a buyer who will love it and make memories just as much as they did. Write an open and honest letter to the seller regarding how you feel about their home and why you think you’re the perfect buyer for the home. You can include photos of yourself, your family members, even your pets. This strategy won’t work with all sellers, but if they have a strong connection to the home, this could impact their decision.
6. Purchase a Home Warranty for the Seller
Traditionally, sellers will use home warranty coverage to protect themselves during the listing period, and as a marketing tool to help sell their home. However, this strategy can also be flipped to help a buyer win a bidding war. By offering to order a home warranty that covers the home immediately, the seller will be protected for any possible claims that could occur between offer acceptance and closing. Since a seller’s home warranty is 100% transferable to the buyer, this helps protect the buyer and seller from any possible breakdowns that could occur until and after closing. It’s really a win-win situation, and it could just give you the edge you need to win. And as always, there is no premium until closing.*
*Click Here to view complete limits of liability and any exclusions. CHW offers service contracts which are not warranties. See policy for specifics on response times. CHW reserves the right to offer cash back in lieu of repair or replacement in the amount of CHW’s actual cost (which at times may be less than retail) to repair or replace any covered system, component or appliance.