If you are a seller, you’ll probably love the multiple offers that create a bidding war. If you are a buyer, bidding wars are dreaded.
Often, bidding wars can be created when inventory is low or when sellers price their homes at market value to 10% lower. We’ve had multiple offers in Foresthill with low inventory on homes priced to sell but as of this writing on May 30, we have forty-five active homes on market, one with a release clause, one temporarily off- market, twenty-one pending and fifty that have sold in the last six months. Bottom line, we have more inventory on market than a month or two ago.
On the flip side of creating a bidding war, some sellers decide to go high so they have negotiating room. You may not know that this strategy limits the potential buyers that may be inclined to look at your house. I’ll explain. If a buyer has their home search cut-off set at 450,000 and your house is priced at 475,000, your listing will not show up on their search. You could be missing the perfect buyer for your house. In addition, remember the buyer’s lender will have the buyer pay for an appraisal. If the appraisal comes in less than offered price, the buyer’s realtor will be asking for a price reduction as the bank will only lend on appraised value. So does it really make sense to over-price your house?
In a bidding war, there are tactics you can use. Often, bidders will go higher than asking price to win the bid. In some cases, you will want your realtor to have the buyers remove the appraisal contingency. That way, if your house doesn’t appraise, the buyers will need to make up the difference in cash.
The highest offer is not always the best offer. Your realtor should call the lender on all offers you are considering to get a feel for the strength of the buyer. Other things to consider are the good faith deposit, down payment and terms of the purchase. Your realtor is your negotiator and can help you pick the best offer.
As a buyer, you want to win a bidding war but not overspend. Know what you really can afford. Your lender can help you here. If you are within your comfort level and lose the bidding war, you still made a good financial decision. But, this is not the time to play hard ball if this is your dream house. Make your best offer first. Sellers can chose any offer they want and may or may not counter your offer.
Your realtor should communicate with the listing agent and ask your lender to call too, although good lenders already do this. They talk about the strength of their buyers. These are informative exchanges where we can discuss concerns or questions. Our point is to make your offer stand out and give the sellers confidence in your offer.
There is a time crunch when submitting an offer. Make sure you have a pre-approval letter before you make an offer and are working with the “right” mortgage lender. A pre-approval involves submitting a mortgage application with verifying documents such as tax returns, pay stubs, W-2’s, etc. Make sure your lender can close your loan well within a twenty-one to thirty day window. A shorter escrow may help you win a bidding war. Great realtors know great lenders and can refer you to one. All lenders are not equal.
Some sellers are not interested in a short escrow and need time to make a transition. If you can be flexible and offer the seller a rent back on the house, it can go a long way in getting your offer accepted.
Your offer looks more attractive to a seller when it is a “clean” offer. In other words, the fewer conditions you put on buying a house, the better chance you have of getting your offer accepted. Consider offering to buy the house “as-is” and shortening your time for doing inspections. “As-is” does not mean you are fully obligated to purchase the home no matter what. Everything is negotiable. You will still have all necessary reports and inspections done so you know what you are buying. Should you find serious problems you can try to re-negotiate with the seller or cancel the contract within the discovery period.
In conclusion, selling your home or buying a new one is an emotional process attached to your finances. A knowledgeable realtor can help you select or write a strong competitive offer, guide you through the transaction and minimize your stress. Remember, we do this every day.