Now that you’re financially secure and have found your dream home, you’re probably ready to take the next step towards purchasing a house. However, if you found your home in a seller’s market, there’s still one thing standing in the way: other buyers. Luckily, we’ve found various strategies that you can use in a bidding war that will help ensure you are more competitive in landing your dream home.
Getting Pre-Approved
Your journey towards home buying doesn’t start with calling a real estate agent — it starts with getting a mortgage pre-approval from a lender. This is because pre-approval helps with two crucial steps:
- Confirms your price range so you’ll know which homes you can afford
- Shows home sellers that you’re serious about purchasing a home
Sellers will always prefer pre-approved buyers because this tells them that you’ll have the money when closing time comes.
If you are paying cash, a proof of fund document from the bank will be needed, either a bank statement or a letter.
Limit Contingencies
A seller won’t want their home to sit on the market and they don’t want to relist their home because a contingency resulted in the fallout of a sale. You can give a stronger offer by limiting your contingencies, which are specific conditions that must first be met before the finalization of a sale. By dropping your contingencies, you’re letting the seller know that you’re flexible and probably not going to make any unreasonable demands on issues like repairs, items to convey, appraisal under asking price, etc.
Make a Competitive Offer
To know what a competitive offer would be, be sure to review recently sold properties with your agent to get an idea of what sellers consider is a fair price. This is because offering a lowball amount will usually backfire, and buying a house is not as negotiable on piercing as it used to be. Offering $200,000 for a house that’s worth $250,000 might come out as an insult and you probably won’t get calls after that.
Increase Earnest Money
A bigger earnest money deposit shows how serious you are with buying the property. Many sellers will feel more confident with buyers who put down a 3% deposit rather than those who put down a 1% deposit. In short, if a house costs $300,000, don’t offer a $2000 deposit — this will make a seller nervous since you can easily walk away without losing much.
Include an Escalation Clause
If you’re worried about overpaying after making a higher offer on a house, an escalation clause may help you if you’re facing competition. It works by having your agent write an escalation clause if you believe that there will be competitors for the home you’re after but aren’t sure of how much they’ll offer. The escalation clause will allow you to pay a certain amount above any offer which stops at your budget limit.
Offer a Quick Close
Sellers prefer to close in as little as 45 days or less, so you can offer a 30 day time frame to give you the edge over other competitors. Furthermore, some sellers find it more important to close successfully and quickly rather than get more money from a deal. So be sure to come prepared with money on hand to ensure that you’ll be able to make the close you promised to the seller.