In today’s competitive housing market, there’s a good chance that your offer won’t be the only one a seller is entertaining. It’s not uncommon to hear sellers have more than 10 offers for one property . . . or that some buyers have put in offers on more than 20 homes, just to lose out time and time again.
In a market like this, it’s not enough to simply have your ducks in a row and walk in with a pre-approval. A market like this takes work if you want to win a bidding war.
With a 25-year history, APM has experienced multiple real estate cycles, so we know what it takes to come out on top!
Below are the 10 steps that could help you win a bidding war.
1. Get Your Financing in Order BEFORE you shop!
A bidding war is a different animal than being the only buyer in town, but that doesn’t mean the old rules are thrown out the window. You still have to come into every bidding war with your financing in tip-top shape.
Make sure your credit score and debt-to-income ratio are where they need to be. If they’re not, work on these items first, then pursue pre-approval, a TBD (property) loan approval, or our Keys on TimeTM program (more on these later).
2. Plan Your Down Payment
The larger the down payment, the more attractive your bid will look to a seller when your intention is to win a bidding war. A 20% down payment is a good starting point. A large down payment may even be able to assist if you make an offer above asking price but have already reached the limit of your loan approval, or if the home you’re bidding on appraises for lower than your offer price.
More cash upfront can compensate for these constraints and possibly help you to win a bidding war. Plus, more cash always looks attractive to sellers. Looking for ways to enhance your down payment? Check out these tips!
3. Understand Sales Price vs. Appraised Value
What you pay for a home and what the home actually appraises for are two different things in the eyes of real estate professionals. A home’s appraised value is determined by a licensed professional who takes the home’s features and amenities, such as square footage, number of bedrooms and bathrooms, condition, and quality of the home, and improvements into consideration. The appraiser will also factor in the price of comparable homes that have sold within a certain time frame in the area, as well as market trends.
If a home is listed for more than its appraised value—or if you’re trying to win a bidding war that’s driving up the home’s price tag—you may need to cover the difference between your winning bid and what the home appraises for.
4. Remain Flexible and Somewhat Detached
It may sound robotic, but you’ll avoid a lot of emotional turmoil if you can keep some perspective on the housing market and what it takes to win a bidding war. It’s easy to fall in love with a house and picture yourself in it. However, it’s just as likely that there are many homes out there that would make you happy.
Keeping an open mind while remaining flexible can lessen the heartbreak that can sadly occur, especially if you’re outbid on multiple properties. Plus, a healthy case of detachment will prevent you from becoming so desperate for a certain home that you offer way more than the house is worth—or more than you can reasonably afford.
5. Determine if “As-Is” Sales are Right for You
An as-is sale is exactly that: buying the home as it stands now, leaky roof and all. That’s because as-is sales come with no guarantees from the seller about the condition of the home or its amenities. Whether you find out the roof leaks before you place a bid or after you’ve lived in the home for six months, any repairs will be your responsibility.
Some buyers who want to win a bidding war will forego inspections or requests for repairs. However, as we said above, it’s always a good idea to keep your emotions in check to ensure you don’t get so wrapped up in a home that you have costly repair bills once you move in. Plus, many loans have minimum property requirements, which means the home has to be deemed structurally sound and livable by an appraiser before your loan is funded. An as-is sale can save you money, but you should determine ahead of time if these are terms you can live with before you decide you want to win a bidding war on an as-is home.
6. Add an Escalation Clause
An escalation clause lets you submit an offer that states you are willing to pay a certain amount of money above the highest bid the seller receives. Escalation clauses usually include caps so you’re not on the hook for substantially more than you can afford.
Sellers don’t have to accept an escalation clause. They can choose to counter instead, but many will entertain one since it’s a guaranteed fish on the hook.
7. Be Ready to Act Fast
If your focus is on winning a bidding war, this is no time to sleep! We don’t mean that literally. You can totally rest up, but what we do mean is that you need to be prepared to act fast should you receive a counteroffer or have a bid accepted. This means keeping your phone on and answering any calls, texts, or emails from your real estate agent or lender.
You should also discuss various scenarios with your family, real estate agent, and lender before your offer is submitted. Are you willing to waive an inspection or repairs? Could you give the seller 60 extra days before moving in? What is the ceiling on your counteroffer? You don’t want to lose out to the next guy because you’ll “need some time to think/talk about this.” Have your answers ready to go and make yourself available for those questions—day and night!
8. Close on the Seller’s Timeline
Some sellers need to close in a hurry, which is why you want to make sure you’re ready to go finance-wise if you want to win a bidding war. This means obtaining pre-approval and partnering with a lender that is known for closing on time, even if it’s a short timeframe.
At the same time, moving out is often a point of contention for sellers. They may need time to close on their new house. Or they may want their kids to finish out the school year uninterrupted. Or they may simply try to leverage their selling power by asking to live in the house for a few months, rent-free. One of the easiest ways to win a bidding war is to acquiesce to the seller’s timeframe when it comes to closing and moving.
9. Make an “All-Cash” Offer with Keys on Time
Speaking of closing on time, APM’s Keys on Time program guarantees the seller that you’ll close on time, making a KOT offer as good as cash. This program comes with a written commitment from APM that you’ll close on time, or APM will pay a guarantee fee of up to $2,000 to you or the seller. This type of commitment gives sellers the confidence they need to seriously consider your offer, placing you in a position to win a bidding war.
Our TBD (property) Loan Approval can further help buyers write competitive offers with a full lender approval before they’ve even started looking for a home. This will ensure you’re ready to pounce, since you’re entering the bidding war fully approved and with a commitment to close on time!
10. Drop Contingencies
Contingencies slow the buying process down—sometimes even grinding it to a halt. If you’re really in this to win this, then it’s best to avoid contingencies whenever possible. Contingencies may involve appraisals, time frame, financing, inspections, due diligence, or other conditions or actions that must be fulfilled before the sale can proceed. If they’re not, the sale is void.
Some buyers also prefer to make their offer contingent on selling their current home. All of these caveats take time and, in a seller’s eyes, can make the offer seem less appealing. If you seriously want to win a bidding war and get this house, make your offer as free of red tape as possible.
There are no guarantees in today’s competitive, fast-paced market, but that doesn’t mean you have to sit on your hands. Instead, grab ahold of your own fate and make sure your offer is as aggressive and attractive as possible through steps like the ones above.
Santa Clarita mortgages lender American Family Funding can help you fulfill your dream of home ownership. A highly rated Santa Clarita mortgages lender, American Family Funding maintains a focus on community involvement and a commitment to giving back whenever possible. A friendly mortgage advisor will make the first time homebuyer experience an easy and stress-free experience — even with bad credit or a low down payment. The Santa Clarita home loan officers at American Family Funding also specialize in VA loans, reverse mortgages, refinancing and the STAR Loan Program.