In this article, we will discuss a few reasons why buyers should prepare for bidding wars, and then we will give some tips regarding how you can prepare to win a bidding war.
- Bidding wars have become increasingly common:
According to a recent survey by the National Home Builders Association, about 40% of people now report the reason for not being able to buy a new house as being outbid by someone else. A year before this unaffordable prices remained the chief reason behind the issue. Overall, real estate professionals are reportedly facing increased bidding wars with their buyer offers recently. This surge in the number of bidders has come as a result of the dwindling supply of homes for sale and an increasing number of willing buyers. All of this points to the fact that house hunters are becoming more involved in making bids and all potential buyers have a higher probability than before to find themselves amidst a bidding war. When a war is anticipated and unavoidable, one must begin to prepare for it.
- Mortgage delinquencies are declining:
With the recent uncertainty and wave of unemployability, peoples’ financial situations took a steep fall. It resulted in people not being able to pay home loans on time, resulting in high delinquency. As the year progressed, a steady fall was observed in this delinquent behavior and now it seems as though people have restored their financial confidence and ability. This has encouraged more bidding wars and has increased intent for purchase. With time it is expected that this positive trend will persist. This gives us another reason to ask potential buyers to gear up for bidding wars.
- The Real Estate and Brokerage Landscape:
The housing industry’s landscape is such that it enables potential buyers to be involved in bidding wars. Brokers can offer smart packages, at convenient rates that help consumers better manage their finances and get in a position to put forward bids. With more people getting access to mortgage services, the number of bids will inevitably continue to rise.
Tips to win a Bidding war:
It is vital to come up with a strategy to win, as you may only have a few hours to respond and get a deal locked amidst the ongoing negotiations with the seller.
- Know your financial limits and cash on them:
You should treat this deal as an auction, be aware of how much you can stretch yourself and your limits.
- Firstly, be ready to offer more down payment to the seller. Down payment is like a security deposit, normally buyers pay this as a 1% to 5% upfront amount on the house to show their seriousness as buyers. You can start by simply offering a higher percentage amount to the sellers to show your higher interest in the purchase.
- Based on the upper limit of your financials, you may include an escalation clause in your agreement. For example, if a house is priced at $350,000 and you know that you are likely to face close competition on this amount, then you can choose to include an escalation clause. This would entail that you would be willing to outbid any other bidder by $5000, up to an amount of $380,000 for the house. This would be true in the case if you can stretch your upper limit to $380,000.
- Lastly, you may offer to pay in cash. This eliminates the risk for the seller, as this reduces the risk of the buyer falling short on a mortgage payment before closing. If not a complete payment, offer to pay a significant portion of the cost as a down payment on cash.
- Get pre-approval:
This is an important step not to miss out on. In a competitive bidding situation, this becomes even more important. In this situation, simply prequalification is not enough. Getting pre-approved by lenders shows that your financial situation has been scrutinized closely and that you have been through hard credit checks.
- Write a personal note to the seller:
While you’re at it, make use of human susceptibility to emotions. Write an emotional and personal note to the seller, highlighting how you need the house to raise a family and build memorable moments with them. Talk about the house itself, how the building is more than just bricks cemented together and has a future of its own. This way you can sway the seller to your side.
- Be flexible and remove contingencies:
This tip applies to some terms and conditions of the agreement. When you close in on the deal, being flexible on minor things such as the moving in and moving out dates could be highly favorable for you. If there exists an inflexible higher bidder, the sellers are more likely to close the deal with someone more flexible yet less on the bidding amount offered.
Also, it would be wise to remove contingencies if you are involved in a serious bid war. Contingency plans allow you to back out of the contract and get back your earnest money if you are unable to make the full payment or if you change your mind. This is highly unattractive for the sellers. So removing your contingency improves your prospects as the one to close on the deal.
- Create an attractive buyer package/profile:
For this to happen, understand the seller well. It is important to know that not all sellers have money as the highest priority. Some sellers have other emotional or legal concerns they want to be met as a priority. A seller may want to sell their house to a modern, thriving nuclear family and not to a commercial investor. Therefore, approach a seller with a particular mindset after understanding their needs and match your profile and reasoning according to it.
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