6 ways to win a house bidding war
If you’re not someone who particularly enjoys a bidding war, today’s real estate market is probably not doing you a favor. Buying is tough these days, which is why we’ve put together these six tips for winning a home bidding war.
Warning word: Much of the home buying advice circulating today involves financial moves that we consider risky. For this reason, we cannot recommend:
- Buy a home without inspection
- Withdrawing money from a retirement account to buy a property
- Repayment of the appraised value of a house
We believe that it is possible to win a bidding war without getting hurt financially. Here are six of our best ideas.
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1. Get pre-approved
Before buying a home, two things usually happen: a mortgage lender pre-qualifies you, and then pre-approves your loan application later. Being prequalified means that the lender think you will be eligible for a mortgage based on the information you provide. It’s pretty but retains very little water.
On the flip side, pre-approval means the lender has checked your credit history, W-2s, bank statements, and approved your mortgage application. If a seller chooses your offer, they don’t have to worry about whether you qualify for a mortgage.
2. Pay in cash if you have some available
Let’s say you’ve been saving for a decade and have the cash to buy a house. In this case, you are almost certainly ahead of the game because sellers know they don’t have to wait for mortgage approval. But no matter how low the current interest rate may be, don’t cash in your 401 (k) or any type of retirement plan to buy a home. Anyone who suggests such a thing does not have your best interests in mind.
3. Be flexible
Suppose the sellers are building a new house and want to wait for it to be completed before closing their current house. Consider accepting their request, if possible. If not, offer to close earlier, but allow them to rent the house until they are ready to move.
4. Pay for an inspection in advance
If you’re currently on the hunt for a home, you’ve undoubtedly heard that the only way to win a bidding war is to forgo all eventualities, including inspection and appraisal. This is terrible advice.
Imagine that you offered $ 350,000 for a house and waived all inspection and appraisal contingencies. You win the bidding war. However, since the house is only valued at $ 295,000, that’s all the bank will lend. Instead of the $ 35,000 (10%) that you planned to use as a down payment, you should come up with $ 55,000. And you’re the proud new owner of a home that’s worth less than you paid for it.
Once you move in you find that the basement is leaking, the furnace is held in place by rubber bands, and there is mold in the attic. It will cost thousands of dollars more to make the house safe and dry.
You can avoid the problem by having an inspector on standby. Once you have a house in mind, ask your real estate agent to arrange another visit. This time, however, bring a home inspector with you. There’s no rule that says you can’t comb the house with a fine comb before you make an offer. For around $ 300 to $ 400, you can have every nook and cranny inspected by an inspector to identify problems that can be costly.
5. Include an escalation clause
An escalation clause works like this: you decide how much you’re willing to pay for a house (based on what you can afford). When your agent writes your offer, he adds something like, âIf a competing bid is made on the property, the auction will automatically increase by $ 1,000, up to a cap of $ 325,000.â The actual increase in your bid can be higher or lower, depending on what fits your budget.Whether the seller accepts it or not, you know you’ve left your best bid on the table.
6. Increase your deposit
When you bid on a home, you must include a down payment (or down payment). Much like a security deposit, a security deposit is a way to let sellers know that you are seriously considering buying the home. If you make an offer but renounce the deal for no legitimate reason (such as the possibility of a valuation too low), you will likely lose the deposit.
Yet, as long as you’ve had the home inspected and leave the possibility of appraisal in the offer, you might consider making your down payment larger than most other buyers. The average home buyer provides 1% to 3% of the purchase price as a down payment. If you’re serious about the house, you can stand out from the crowd by putting on more.
Your down payment is part of your down payment, so anything you pay is deducted from the amount due at closing. Let’s say you’re supposed to bring $ 40,000 with you to close the house, but you put down a $ 15,000 down payment. This means that you will only have to show up at the close with $ 25,000.
One final note about bad advice you might receive
The same competitive buying environment that currently exists in the United States is the status quo in parts of the country. Buyers are willing to jump through the hoops for a chance to buy a home.
For example, in the Bay Area of ââCalifornia, realtors have long advised their clients to write a letter to the seller of the house, explaining why they want to live in the house, what they value about the property, and a little bit about their family. .
Last year, the National Association of Realtors (NAR) told agents letters to sellers were a bad idea. If your agent – or someone else – suggests that you write a letter to a salesperson in the hopes of influencing them, you might want to move on. Whether or not you include a photo of your family (many do), the clues in the letter can reveal your race, religion, marital status, and other personal details. For this reason, the NAR warns that these “love letters” to sellers can raise fair housing issues and even open up sellers and their agents to fair housing law violations.
If you are looking for a home, you are probably eager to find a home that you own. We believe you can win a bidding war while protecting your bottom line. It may just take a little longer.