Real Estate 'Bidding Wars'... What they are, and How to Win
What Are "Bidding Wars" And How To Win
The real estate market is brutal, and it's only gotten worse in today's world. Fewer people are selling houses, and more people are trying to buy them. The cutthroat market, combined with a dwindling supply and growing demand has made bidding wars a quickly and massively growing certainty. Almost anyone who is house hunting these days has to contend with bidding wars. So, what exactly is a bidding war, how does it affect your quest as a homebuyer, and how do you win one?
What Exactly is a Bidding War?
A bidding war in real estate works a bit differently than an auction, but at its core, it's the same principle. You're competing against other buyers to get a piece of property. The seller often benefits the most from a bidding war, and it will often end with a few less than happy buyers. A bidding war starts when two or more buyers present offers to the seller or their listing agent. If the seller doesn't particularly care for any of the offers, then they may ask the potential buyers to offer a bit more in order to get picked ahead of the other offers. More often than not, this starts a bidding war between the buyers, while the seller sits back until they're satisfied with one of the steadily rising offers. Bidding wars can be a dangerous game for buyers, and if you're not careful, it can easily push you above what you thought you would be paying.
Winning a Bidding War
Unlike an actual war, winning a bidding war doesn't involve bloodshed unless you're unusually dedicated. What it does involve, however, is a lot of preparation, and a lot more patience. The very first thing you need to do before you know how to win a bidding war is to determine your absolute maximum price. This is the absolute limit of what you'd be willing to pay for the property and should factor in other costs as well. These other costs include mortgage payments, property taxes, homeowners insurance, any potential HOA fees, and even general upkeep. Once you've decided on your absolute limit, start looking for homes for sale a little bit below that. Now, let's say you've found a house you want, and have engaged in a bidding war. How do you win it?
Work With Your Real Estate Agent
If you don't have one get one, your Realtor is going to know more about real estate than most people. They'll have experience with bidding wars, and will be able to help you immensely in the negotiations. Your real estate agent is one of your best assets, so don't waste it. They can be a fountain of knowledge as well, and will often be able to give you advice on handling bidding wars.
Cash is the Best Kind of Money
If at all possible, offer payment in cash. Sellers don't like to deal with loans that may or may not come through or waste their time with mortgage processing. Moreover, there are very few negotiation tactics more enticing than a massive stack of dollar bills that they can have right then and there. Paying cash for a home can vastly increase your chances of winning a bidding war, offer a massive convenience to both you and the seller, and may even result in a lower price. Moreover, you can always take out a mortgage after the transaction is completed.
Now It's Personal
Personal letters can massively boost your success rate. If you send a heartfelt personal letter explaining your situation and sympathizing with the seller, then it'll generally score you a few points. This strategy is especially effective if the seller has lived in the home for a long time. Selling your house can be emotional, and buying one can be as well. What you absolutely do not want to do, however, is state plans to gut the house or flip it. If you do have plans to immediately flip the property or completely gut it, then maybe they're best left unsaid.
Dispose of Contingencies
Sellers hate home sale contingencies. If a deal is contingent on your loan being approved, then it's less likely that the seller will entertain your offer. However, if you remove that contingency, then you can gain a massive advantage. The main issue with this strategy is that, if your loan doesn't get approved, then you'll be in a world of trouble. If you want to eliminate the financing contingency, then the best strategy is to have the loan approved in advance, so the seller is already certain that you'll be able to pay. A loan that's underwritten and pre-approved will raise some eyebrows and make the seller consider your offer far more seriously.
Stay Within Your Budget
Remember that budget from earlier? Don't go over it. Just don't do it. If you can't afford the property, then it may be time to walk away and look for another. It's at this point that your agent may advise that you keep going, and it's also at this point that you should ignore them and walk away. Your agent wants to make money, and they'll make more money if you buy a home that's more expensive. While almost any other time, your agent's advice is more valuable than gold, you need to be cautious when they stand to make more money at your expense.
Try to Stay Sane
You won't win every bidding war, and that's okay. Try to maintain a good humor and keep yourself sane. Don't take a loss too hard, and don't overstep your constraints to get a better deal. If you can't offer cash without significant expense, then it might be best to keep looking. If you can't get pre-approved, then it's probably better to keep contingencies in place; and if you're not that personally or emotionally invested in a new home, then a personal letter might not come off as genuine.