Sometimes you find the ideal house for you and your family only to find out that there are other parties interested in purchasing it. If this happens, you may become embroiled in a bidding war, which can quickly drive the price of the perfect home up. If you’re worried about being the winning bidder, there are a few steps you can take to ensure your offer is the winning one:
Getting pre-approved for a mortgage at a price higher than the current listing on the house is a great way to get an edge over the competition. Sellers are always wary of buyers with bad credit, and pre-approval takes care of that. It also means you can close more quickly on the house because you won’t have to wait as long to get your mortgage in place.
Keep in mind that pre-approval and pre-qualified are two different things. Pre-qualification isn’t as strong and doesn’t guarantee that the lender will give you the full mortgage amount you want, it just means they will consider making the loan. If you want to be pre-approved, you’ll need to fill out a complete mortgage application and provide extensive documentation.
Offer A Strong Down Payment
The larger your down payment, the more seriously the sellers will take you. If you come in with a lower figure on your down payment, the sellers may assume that you’re struggling financially or they may fear that you won’t be able to come up with the funds when the time comes to close. This can be particularly helpful if the seller needs to close on the house quickly because they are in financial difficulties.
Understand the Sellers and Help the Sellers Understand You
Regardless of whether the seller is putting their home on the market for personal or financial reasons, you can tap into their feelings with the right letter. If you know they’ve raised their children in the house and you have young children of your own, the personal connection can make a real difference. Having a career as a doctor, firefighter, nurse or some other altruistic pursuit may also help.
If money talks, however, skip the warm feelings and aim straight for their wallet. If you find out that the seller is in foreclosure or is behind on their own mortgage payments, they will want to close as quickly as possible so that they can move on with one less debt to worry about. If you have the means to make a cash offer to a homeowner in foreclosure, you could make an offer that’s up to 20% less than other buyers who have to take out a mortgage.
Be Willing to Negotiate on the Details
If you’re in a bidding war for a house, you’ll need to be extremely flexible on the terms of the offer. Don’t put in any clauses that will slow down the sale of the house. Stating that you’ll only close once your own house sells is a recipe for losing your dream home. You may have to carry two mortgages for a short time, but it may be preferable to losing out on the home you’ve dreamed about. Also don’t include a mortgage contingency clause that allows you to back out of the sale if you don’t get the financing you need. (If you’ve been pre-approved, this won’t be a problem.) Sellers hate losing potential home buyers because the current deal falls through.
In the past decade, houses have mostly sold for less than their asking prices, but that’s changing. It’s now a sellers’ market, which means the days of offering a low-ball figure and getting a counter-offer from the seller are over. Make a strong offer from the start. This might mean
It’s usually a good idea to “sleep on it” when you’re buying a house, but if there are multiple bidders or the seller wants to close as soon as possible, respond quickly to any counter-offers. Don’t ask for a few days to think it over; the seller may move on to the next buyer while you’re mulling over your options. Try to respond by the end of the day (or sooner if possible).
Don’t Fester Over Small Details
Five years ago, a home buyer could ask the sellers to do minor repairs before they would sign. This gave buyers a move-in ready home and put the expensive of minor facelifts on the seller. Today if you ask the current owner to cut down a few trees, repaint the exterior or fix the leaky faucet in the sink, the seller will probably move on to a seller who is willing to buy the house “as is.”
Finally, be ready to close as soon as possible and make the closing itself as painless as possible. Have all your documents ready in advance, schedule a time that is convenient to the seller, and make the process as smooth as possible for everyone.