When its a prime home buying a selling season, and, if you are looking to buy in an area with low inventory and high demand, you probably are going to run into a bidding war. How do you handle a bidding war on your dream home? In order to win one, you need to know first, the possibilities of what can go wrong. Here are some mistakes that buyers tend to make, that costs them the home during a bidding war.
Failing to realize you are in a bidding war: A great way to lose one, is to not realize there’s going to be one. So, how do you know? Know where you’re looking. In coveted areas, chances are, there will be a bidding war. Observe how many are at an open house. If the house is overflowing, there will likely be multiple offers coming through the door. If you’ve made an offer, and your agent tells you they’ve had higher bids, you now know you have competition.
Not being organized: Sellers want a clear, organized offer. If its all jumbled up, with writing all over it, and just a complete mess, they will pass. No one wants to decode a string of papers. You should ask yourself:
•Is there a deadline to submit offers?
•Is there a specific offer format the seller wants to see?
•Are there any other factors that might be important to the seller? Do he want a quick closing? Non-contingent financing offers? Does the seller want to stay in or rent the home until he can find another home?
Have an organized packet, as well as a pre-approval mortgage offer. Write a letter that will make the owner see you as a person instead of a piece of paper with a monetary figure on it. In the letter, write why you love the home, and other things that tie the owner to you emotionally.
Being ill-prepared: When you’re competing with multiple offers, you have to come prepared. Cash deals are almost an easy win. Since most people cannot afford to do that, get pre-approved so that the seller takes you seriously. Another way is to increase the amount of your down payment. Read: Bidding War Basics for Buyers.
Not knowing when its time to walk away: Realize when its time to walk. If you’re overpaying on your budget to the point where you cannot afford it, leave it be. It’s easy to get caught in a war, and feel the need to “win.” Set a limit on what you’re willing to pay for the house before you even submit your offer. Make your best offer upfront. Write an escalation clause, which details how much you’re willing to outbid another offer up to a certain limit.
Not being available: If you really want that home, you should stick around until you know whether your offer fell through or was accepted. Don’t go out of town or be otherwise inaccessible to your Realtor during a bidding war. Be prepared to make decisions very quickly and respond very quickly to questions about your offer. Sellers like to close fast. When you’re in a multiple-offer situation, it’s best to make an offer with few contingencies. That can mean foregoing repairs or added appliances and furniture.
There are many things you can do to increase your chances to win in a bidding war. The important thing is to make sure you aren’t acting on a whim just for the sake of “winning.” More importantly, is to be willing to walk away. For further reading, see: Why You May Lose a Bidding War, but Still Get the House.