Tips on How to Win a Bidding War
The time has come. After searching for months on end, you've finally found the home of your dreams!
However, you know that if you love the home, it's almost guaranteed that someone else does too, especially in this market. There is a high probability that you could be outbid for your dream home. Read on for some suggestions on how to avoid this and put yourself in the best position possible before putting a bid on a home.
To increase your chances of having your offer accepted, consider whether these six steps our team put together could work for you.
- Get preapproved for a loan.
Getting preapproved helps your chances of winning the bidding war because it shows sellers you are a serious and able buyer. In fact, there may be some instances where real estate agents will refuse to show you a home if you are not preapproved. Securing a preapproval and bringing the letter with you sends the message that you're a serious about taking this step.
- Include an approaisal gap guarantee.
An appraisal gap is the difference between your offer and the appraised value of the home. For example, if you offer $300,000 and the appraised price is $250,000, the appraisal gap is $50,000. An appraisal gap guarantee is a promise to the seller that you will pay the appraisal gap if the appraised price is lower than your offer. When there are multiple offers, an appraisal gap guarantee can give peace of mind to the person selling the home and can help you win the bidding war. Keep in mind that it can be difficult to secure a loan for an amount that is greater than the appraised value. However, if this option makes economic sense for you, some banks offer grants or other subsidies to help cover this gap.
- Determine whether to include an escalation clause.
An escalation clause is essentially a documented promise to a seller that you are willing to increase your offer price if someone outbids your current offer. This clause allows you to indicate how much you will bid over the highest offer (example: $10,000 higher) as well as the maximum amount you will offer. An escalation clause can make your offer more attractive to a seller. However, there are some important considerations — including that you're telling the seller your highest offer and some sellers may not accept offers with an escalation clause. You should talk to your real estate agent about whether the clause makes sense for your situation.
- Offer to pay seller costs.
When you purchase a home, the person selling the home will incur expenses known as "seller costs". These costs include agent commissions, attorney fees (if applicable), closing costs, transfer taxes and more. Even if someone outbids you, but you can afford to pay seller costs, it could make your offer more attractive to the seller.
- Drop contingencies.
Contingencies are clauses in a purchasing agreement that specify requirements a seller must fulfil for the contract to become legally binding. Many buyers, for example, will add a contingency that they must sell their current property before they can purchase the seller's. Dropping contingencies, if feasible for you, tells the seller you plan to purchase the house no matter what.
- Skip the inspection (at your own risk).
Buyers have the right to have a property inspected before making a purchase. The purpose of the inspection is to discover any damages that need repairing. Since inspections can lead to further negotiation or even cancelled contracts, many sellers will accept your offer faster if you offer to skip this step. However — be very cautious when deciding to go this route. Without a professional inspection, you could uncover unpleasant, and potentially expensive, surprises after you've purchased the home.
These tips are not intended to provide professional advice and you should talk with knowledgeable professionals, such as a real estate agent, before determining the course of action that's best for you. From all of us at Foremost — good luck and happy house hunting!
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