How to Win a Bidding War

How Homebuyers Can Beat the Competition

How to Win a Bidding War
July 16, 2014

The US housing recovery has paused so far in 2014. Yet bidding wars remain common in specific markets and price ranges where a shortage of inventory revs up competition among buyers. Due to online listings and mobile apps, it is possible for a house to be noticed and garner multiple offers the same day it goes onto the market, especially if it is reasonably priced.

Can you compete? You can, with some relatively simple planning.

  • Lender-Shop Beforehand – If you haven't found a mortgage lender whom you are comfortable with, do so before you begin house shopping. Even before that, verify that your credit scores are in good shape to avoid nasty surprises.

  • Get Pre-Approved – The better your financial qualifications, the more likely you are to be the winning bidder. You may be able to prevail over a higher bid with shakier or unproven financing.

    Pre-approval strengthens your offer by solidifying your financing. Note this is not the same as pre-qualification, which is an early estimate of how much of a loan you can qualify for. With pre-approval, the lender has pulled your credit report and performed a more detailed analysis of your creditworthiness.

    Keep your information current so your lender can quickly prepare an updated pre-approval letter to be submitted with your offer. Be prepared to provide further proof of your financial qualifications with detailed information if needed (recent pay stubs, etc.).

  • Get Seller's Details – If your agent can speak with the seller's agent as soon as possible, you may be able to get information that can give you an edge – insights into the seller's motivation and what aspects are really important to them. Do they need the funds quickly? Are they trying to simultaneously buy another house and need specialized closing terms or rent-back options?

    Inside information can give you a huge advantage. Offer anything that you can afford to offer to make the seller's life easier. A personal note on why you want the home and how connected you feel to it may also tilt things in your favor.

  • Minimize Contingencies – Buying as-is is often a bad idea, but you want to minimize contingencies for inspection or appraisal. With coordination, you can limit the inspection time to a week or less and can specify that in writing. However, if you have a financial contingency, like having to sell your house first, then you have a very steep hill to climb.

  • Have More Cash – The more cash you can offer, the more obviously solid your offer is. Try to least have the standard 20% down payment and all closing costs free of financing.

  • Bid Wisely – Low-ballers do not win bidding wars. Set a reasonable value and make your offer.

    You can add a reasonable escalation clause – however, you should treat this just like any sort of auction and set a maximum premium price that you can tolerate. Cap the clause at that point, and be prepared to walk away if the competition puts in an absurd price. Bid aggressively, but do not overpay.

In essence, the best way to win a bidding war is to do your financial preparation beforehand, quickly gather all the information you can about the house and the sellers, and have all the contacts you need (lenders, appraisers, etc.) mobilized to move quickly. Remember, time is money.

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