In these days of record low housing inventories, buying a house can seem like a military campaign.
Bidding wars, which happen when competing homebuyers battle to make the winning offer, are on the rise. More than 6 in 10 of home offers faced bidding wars in February, thanks to low housing inventories. That’s an increase of two percent just from the month before.
It’s a reversal of fortune from the previous year. At that time, only 19 percent of homebuyers were outbid on their offers. Today, a property can sell for tens of thousands of dollars over its list price.
Low inventory creates high demand. As a result, “For Sale’’ signs are quickly replaced in most cases with “Sale Pending" signs, sometimes as quickly as overnight. More than half of homes on the market go under contract in less than two weeks.
That’s certainly discouraging news for would-be homeowners. But you can win this battle, even when you can't pay cash for tens of thousands over the asking price. Here are five ways to improve your odds:
1. Be prepared. It’s crucial to have your financing in hand but never more so than in a bidding war. With decisions often required on the spot, having proof that you're ready and able to make the deal at a moment’s notice gives you an edge over those who need to verify their banking information or who face other delays.
2. Consider an escalation clause. An escalation clause promises you will offer a certain amount over the top bid. This, of course, costs you more, but it provides you with some peace of mind that you will win. Just be sure that, when everything is factored in, you don’t overpay to your future financial detriment.
3. Stay flexible. If you can give the sellers more time to move, for example, that may put you ahead of other buyers who need to occupy the home by a certain date. You can also willing to work with them on other issues, such as agreeing to make certain repairs yourself.
4. Write a letter. When you've found a house that feels like your home, let the seller know how you feel. Just as there are many emotions around buying a home, there are emotions about selling, too, and your seller may have plenty of them. Money isn't the only currency in this transaction. A letter that tells the seller how much their home will be loved and appreciated could give you the edge over your competitors' cash bids.
5. Keep your cool. Even in a tight market with little inventory, there are always homes going on the market. You want to be certain that entering a bidding war makes sense. Think carefully if repairs or renovations will be needed, or the size if it's smaller or larger than you originally wanted. Think with your head and wallet, not just with the heart that already pictures backyard barbecues and cozy nights on the couch.
A real estate agent friend of mine would always remind clients that everything tends to work out in the housing market. Your perfect home will happen if you put in the leg work. The dream may have a different address or layout than you had imagined but you can still live there happily ever after.
Download The First-Time Homebuyer's Handbook, our free eGuide that explains the homebuying process...from finding your first home and making an offer, to getting a mortgage and moving into your first home. (You will even find this guide handy if it's your second, third, or fifth home purchase!) Download it here today!
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