You’ve found The One. You’re in love. It all seems perfect … and then someone comes along and tries to ruin everything. Suddenly, you’re in a bidding war for the home you just have to own.
How do you win and get your happily ever after? In this housing market, where inventories are tight, home prices are rising, and interest rates could go up at any time, we have some steps you can take to get ahead of the competition and snag the home of your dreams before someone else does.
In 2017, nearly a quarter of all U.S. home sales were above asking price, with an average of $7,000 paid over the listed price. In a seller’s market, you may need to go all in from the get-go. An attractive offer can help you avoid some of the back-and-forth involved in negotiating and get your purchase moving more quickly. But if you’re financing, you also need to be sure the property will appraise for the higher amount. If you’re not sure how high to go, your real estate agent can help you determine the right price when you’re offering to pay more for the home right off the bat.
Taking the initiative to work with a lender before you make an offer will let the seller know you mean business. By getting pre-approved or pre-qualified, you’ll know your budget, and you’ll be able to determine how much your monthly loan payments will be and what price range you can shop in.
Pre-qualification: You may be able to get pre-qualified over the phone. A pre-qualification is an estimate of how much money you might be able to secure for a home loan. With pre-qualification, the lender will run a quick check on your finances and come up with a figure that they would probably agree to loan you.
Pre-approval: If you get pre-approved, it means that you will be approved for the loan (barring unforeseen circumstances). You’ll have a letter from the lender that you can include with your offer on the home. It shows you’re serious and that your bid should be taken seriously. With pre-approval, you’ll need to gather documents, and your income, finances, and credit will be reviewed and verified.
Together with your real estate agent, the lender can help you determine whether pre-approval or pre-qualification is the best option for you.
Proceed with caution on this one. Sometimes, waiving contingencies like the appraisal or inspection can make your offer more attractive to sellers, but doing so can come with risks. While you do have the option to forgo a home inspection, it is not recommended, as you don’t want to be stuck with a home that has a crumbling foundation, termites, or other high-cost issues. When you waive the appraisal contingency, if the home appraises for less than what you’ve offered, it’s unlikely that you’ll get financing above the appraisal price. You’d need to increase your down payment to make up the difference in order to have a chance with your bid.
This tactic has become much more common over the past few years as the housing inventory has been shrinking. Making a personal connection with the seller can tip the scales in your favor, especially when the seller has a strong attachment to the home. Write about building your life, raising your family, celebrating important holidays and milestones, and what you love about the home and neighborhood.
Of course, none of these tactics are 100% guaranteed to make you the winner in a bidding war. The biggest tip we have? Know when to walk away. After all, no house is completely perfect, and if you don’t make this one yours, there’s sure to be another that catches your eye … maybe just around the corner.
Guest post from our good friend Ben McAffee and First Colony Mortgage. Thanks for sharing this awesome tip with us!