This is a great time to sell a home — but not such a great time for buyers.
While there’s usually a sudden influx of “For Sale” signs in neighborhoods every spring, there were roughly 20% fewer homes up for sale in March 2021 than there were just a year before. That means that listed properties often sell fast, so buyers don’t have long to consider their options. If you see a house and you wait to look around, you’re probably going to lose out.
But even if you pounce on a property the day it first gets listed, you may still find yourself in competition with other anxious buyers, especially if homes in the neighborhood you want are in high demand.
“Bidding wars” over homes aren’t uncommon, with buyers often receiving a flood of offers all at once. Real estate companies are reporting that roughly a third of homes out there right now are selling for more than their asking price, and more than 60% involve bidding wars.
So what can you do to tilt the odds of winning a bidding war in your favor and edge out your competition on your dream home? We’ve got some tips:
1. Get Your Financing in Order
It should go without saying, but having proof that you can afford the home is essential when you make a bid. A lot of first-time buyers (and even buyers who have been down this road before but in an uncompetitive market) don’t realize just how big a difference there is between being “pre-qualified” and “pre-approved” for a loan.
Unless you can afford to pay cash for a home, you need that pre-approval from your lender in your pocket when you make an offer on a home. No seller is going to wait around on a buyer that hasn’t already locked down a loan when they have a concrete offer that’s a “done deal” from someone else.
Speaking of which: If you can afford it, a cash offer can always put you at the top of the pack in a bidding war. If you have the resources to pay cash, it can allow you to negate all of the hassles you and the seller can face when it comes to bank appraisals and closing dates — and that will definitely make your offer very attractive.
2. Offer as Much as You Can the First Time
Outbidding the competition is part of any bidding war, so put your best offer on the table first — and go above purchase price, if you can. Sellers are naturally hoping to get the most out of their property, and many are concerned about having enough to find their next home. If you’re determined to win a bidding war, you need to put as much money on the table as possible.
There’s a catch, though, to this strategy (aside from making sure that you aren’t offering more than you can afford): If you include a contingency clause that ties the purchase price to the appraisal, you could be engineering your own defeat.
When you’re offering thousands past the asking price, there’s a possibility that the home won’t appraise for that much. (This also means that you need to be prepared to pay the difference between the appraisal and the purchase price at closing, so be cautious.)
3. Get Your Earnest Money Ready
In this kind of market, the days where would-be buyers could offer 1% or 2% of the home’s asking price to secure their bid are gone. Today, you’re more likely to get a seller’s attention if you’re willing to put down cold, hard cash that amounts to 10% or 20% of the asking price, instead.
This does two things for you:
- It tells the seller you are serious about the purchase and are unlikely to get “cold feet” and back out. In many markets, buyers who decide to abandon a home deal are willing to eat the loss when their earnest money is only a few thousand dollars. Few walk away from deals where there’s substantial money on the line.
- It shows the seller you have the financial means to afford the home. If the seller has any lingering doubts about your ability to secure financing, the hefty earnest money deposit will probably relieve those fears.
If you do get the house, there’s no loss to you by doing this, since the earnest money can be applied to your closing costs and downpayment.
4. Skip the Contingencies
In an ordinary housing market, there are usually a few contingency clauses in every deal. Contingencies are conditions that have to be met before the sale goes through.
For example, we mentioned one contingency surrounding the appraisal. Other common contingencies tend to surround the property inspection and minor repairs. Telling the seller that you’ll take the home “as-is” can be risky (because there could be problems that aren’t visible to the naked eye), but it could also make you their preferred buyer if they want a quick sale.
Finally, never be afraid to rely on your agent for advice when you’re in a bidding war (or suspect one is coming). They know the market better than anybody and can tell you when it’s worth it to engage — and when you should walk away.
