Limited home inventory means dealing with buyer competition for available properties. A bidding war happens when a seller gets multiple offers on the home, and buyers are pitted against each other, each raising their purchase offer in hopes of winning the deal.
Sellers enjoy this situation, as they can cherry-pick from the highest offers with the least amount of contingencies. Sometimes a seller will induce these situations by purposely listing the home below market value, creating a buyer frenzy that often bumps the final price above market value.
If you get caught up in a bidding war, you can compete wisely by following some rules:
1. Know your financial limits. If you win the bid, but cannot get approved for the higher mortgage amount, you won’t get the home anyway. Even if you can swing a higher mortgage amount than originally planned, think about other expenses you’ll need to handle. Winning the bidding war while going broke isn’t a victory.
Important: If you are using a mortgage to pay for your home purchase, your lender will require an appraisal. If the appraisal falls short of the agreed-upon sale price, then you will need to pay the difference between your mortgage amount and the sale price or, the seller will need to reduce the price!
2. Don’t drop critical contingencies. Too often, seller agents will suggest you waive your right to a home inspection or waive financing or appraisal contingencies in order to make your offer easier for the seller. This can be a very expensive mistake! Your purchase offer is a binding contract. Without contingencies, you could find yourself stuck in a regrettable deal without any escape clause.
3. Competing offers might be above yours by as little as $100 or $1,000. Don’t assume you need to offer $10,000 more! Use the market guidance of your EXCLUSIVE BUYER AGENT when submitting a higher offer.
4. The quality of your offer also counts; your type of financing, the amount of your down payment, and the amount of your earnest money are all considerations. Ultimately, the seller needs confidence that your deal is going to go through! For this reason, the highest bid itself doesn’t always win!
5. Be flexible and easy to work with. Look for seller problems that you might be able to help solve, without causing undue inconvenience to yourself, or harm to your interests. Be willing to find middle ground in negotiations.
6. Work closely with your Exclusive Buyer Agent, who always has your best interests at heart! He or she will help you write a strategic, compelling offer that stands out from the competition, while protecting you throughout the process.