52% of all buyers entered a bidding war last December.
In January, that number rose to 56%.
Fighting for your dream home gets stressful. Your heart sinks every time there’s a higher bid, making you think about how much you want this home and if you can afford to stay in the race. If you want to win a bidding war, you need every advantage you can get.
We’re here to help with that. Here’s how to prepare for a bidding war:
Get Preapproved for a Mortgage
This step should be obvious, but it’s still worth mentioning. Preapprovals help you understand how much home you can afford, and you need one before entering into a bidding war. Getting a prequalification is not enough. It doesn’t show that your lender conducted a deep dive into your financial situation -- yet.
If you can’t get a preapproval, your lender can present you with options for a financial roadmap that will help you buy a home. Unfortunately, it’s unlikely to be the home you’re bidding on.
Know Your Financial Ceiling
A bidding war is basically an auction for houses, minus the fact that the winner isn’t always the highest bidder. A preapproval tells you how much you can afford, but it’s up to you to determine how much you’re willing to pay. Often, these two numbers are not the same.
Scrutinize your finances to determine how much you’re willing to spend for a down payment and on your monthly mortgage payments. If you win a bidding war by blowing a hole through your financial ceiling, your dream home can turn into a nightmare.
Know how high you’re willing to go before you enter a bid, and be willing to let it go before you hit your ceiling.
Include an Escalation Clause
An escalation clause lets you increase your bid to avoid getting outbid by another buyer. Once you know your ceiling, you can set this up so that you’re continuously the highest bidder until you reach your maximum.
For example, let’s say that the home you’re bidding on is $500,000, but you’re willing to go to $550,000. You can put in your escalation clause that you’ll overbid anyone else by $5,000 up until you hit $550,000. If someone bids $510,000, your bid automatically becomes $515,000. If someone bids $520,000, your bid is $525,000, and so on…
Personalize Your Offer
Selling a home isn’t always about the money. Homeowners build memories in the spaces they live in. It could be the first home they ever bought, or maybe they raised their kids in it. Learn the homeowner’s story, and then share your own in a personal letter.
Include a few details about yourself and your family. Let them get to know you, your situation, and why you like this home. Chances are the sellers love their property and will want to sell it to someone they believe will love it as much as they do. If you make a strong connection with them, having an offer that comes in at $10,000 lower than the highest bid might not matter.
Provide Earnest Money
Earnest money is money that you as a buyer puts down to show you’re serious about buying a home. In exchange, the seller takes the home off the market and gives you time to go through the rest of the home buying process.
Much like a preapproval, you’ll likely need to provide earnest money in a bidding war to prove that you’re a contender. If you’re up against another bidder, and they have earnest money but you don’t, chances are you’ll lose the war.
Remove Some Contingencies
Contingency clauses define a condition or action that must be met to make a real estate contract binding. Both the buyer and the seller must agree to the terms of the contract - contingencies and all - before signing.
Some contingencies include:
The fewer contingencies you place on a sale, the more attractive you’re likely to appear to a seller amidst a tense bidding war.
MG Pro Tip: “Do not agree to removing all contingencies. For example, if you forego a home inspection, there’s no telling what kinds of repairs or upgrades are necessary.”
Line Up a Home Inspector
Speaking of home inspectors, have one in the wings ready to inspect a home. The more prepared you are, the smoother a home buying transaction will be. If you happen to be readier than a competitive bidder, the convenience factor might give you the edge you need to close a deal.
If you don’t require a fixed move-in date, it may make the seller’s life a lot easier. The seller may be simultaneously buying a new home, so their move-in dates may be subject to someone else. They might also be having a new home built or making a big move.
There are multiple reasons why they may need a flexible move out date. Letting them know you can adapt to their schedule may be enough to get the keys to your dream home.
Hire an Agent that Communicates Well
Your agent may be the reason you win a bidding war. If they’re good listeners, they can pick up nuances about the seller than other agents may not. If they’re good communicators, they’re probably excellent relationship builders, and can talk with the seller’s agent and get advice on how to sweeten a deal. People do business with those that they like, know, and trust. Having an agent that fits the bill can make the difference in a bidding war.
By the way, we’ve won over 80% of ours.
Final Thoughts on Bidding Wars
As the wise philosopher, Jessie J, once said, it’s not always about the money. Many home buyers have won without having the highest bid, and they did so by adapting one or several of these strategies.
By Anthony Greer
Anthony Greer specializes in content writing and brand messaging development for service-based businesses. www.anthony-greer.com