How to Win a Bidding War on a Home
But it’s not always about who has the most money. Sellers will accept lower offers if it means less hassle.
Here’s how you can win over a seller and get the house you want:
Pay with cash. The best way to get a seller’s attention is with cold hard cash. That is, if you can afford it.
Ever since the housing meltdown, getting a mortgage has become a longer and more arduous process. Securing a loan can take weeks — and there is always the chance it will fall through.
Get your mortgage ready in advance. Don’t have a ton of cash to put on the table? Try pre-underwriting a mortgage instead.
With pre-underwriting, lenders take the pre-approval process a step further by reviewing all of the income and asset documentation that they would typically need to approve a mortgage.
Be flexible (but not foolish) with contingencies. Contingencies are clauses that allow buyers to back out of deals if specified conditions are not met. A bidder will sign a contract to buy a home contingent on the appraisal coming in at or over the selling price, for example.
One contingency you should think twice about before waiving is the home inspection. Should the inspector discover a major problem, such as widespread termite damage or a badly cracked foundation, it could cost far too much to fix. You want to know that before making a commitment you can’t back out of, said Nicholas.
Be first. See the home as soon as it comes on the market. That way, you can get your bid in early and preempt later offers.
Agree to outbid everyone. Do you really want the place? You can outmatch every other bidder by creating a contract with a so-called “escalation clause.”
The clause basically states that you will pay $1,000 or $10,000 more than whatever the highest bidder offers.
So if the seller gets an offer for $200,000, your bid will automatically jump to $201,000 if you have an escalation clause.
The problem is that the final home price may be a lot higher than the appraised value of the home. That could jeopardize the mortgage or force you to come up with a lot of cash to make up for the shortfall.
One way to prevent that from happening is to place a cap on the bid, offering to pay no more than 10% or 20% above the original asking price.