In a tight real estate market, offering the advertised price for a house is sometimes not enough. If other house hunters make higher bids, someone else will get your dream home. Anyone who wants to end up holding the front door keys should consider the following seven recommendations.
1. Get pre-approval for a mortgage. Keep in mind that this is not the same as being prequalified, which merely confirms your income and provides an estimate of a possible mortgage amount. Pre-approval is a firm commitment from your bank to offer a specific mortgage amount.
2. Bid early and bid seriously. Submit an offer as soon as you decide you want the house. If yours is the first offer, that is advantageous. When multiple potential buyers bid the same amount, sellers tend to favor the first offer. Also, ensure that your bid is serious – this is not the time to make a lowball offer. You should bid at or slightly above the advertised price.
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3. Insert an escalation clause if permitted in your market. This is a clause added to the offer document which stipulates that you are willing to increase your bid incrementally up to a specified maximum. If your initial bid is $500,000, but you fear that other bidders will go higher, the escalation clause might state that you are willing to add increments of $5,000 to defeat competing bids, up to a maximum of $550,000.
4. Volunteer to do a pre-inspection. Stating that you are willing to have a home inspection done before you submit an offer means that the standard clause specifying that the offer is contingent on a clean house inspection can be omitted. This streamlines your offer and makes your bid more attractive to the seller.
5. Limit your conditions. Sellers prefer offers that include the fewest conditions. You should consider omitting conditions such as requiring the seller to purchase a home warranty, requesting that the seller leave certain appliances or window coverings in the house, or asking the seller to pay your closing costs. These provisions are okay for a buyer’s market, but they weaken your bid in a seller’s market.
6. Be flexible about the closing date. If the seller prefers to stay in the home until their new house is ready – or, alternately, if they would like to move out as soon as possible – your willingness to be accommodating will increase the likelihood that your offer will be successful.
7. Write a “love letter.” In this context, a “love letter” is a personal letter to the seller in which you explain why you want to live in the house. It typically contains a reference to a favorite feature of the house, and it is meant to tug at the heart strings of the seller. This is your opportunity to speak directly to the seller in human – rather than strictly financial – terms.
Winning a bidding war is never a certainty, even if you follow all these recommendations. A competing bidder may be willing to go much higher than you are willing (or able) to bid. Nevertheless, a carefully formulated offer which incorporates all of these recommendations is very attractive to any seller.
If you are looking to buy a home, anywhere – Call Ballen at 1-800-805-8354. Our agents are skilled and ready to help you get in a home today.