Bidding Wars: Getting the Property You Want
While the official word is that the housing recovery is just starting, the fact is that the atmosphere around residential real estate sales over the last year or two has shifted dramatically, and it’s a seller’s market. While prices are still rebounding, the relatively low number of new listings coming into the market has created a situation where bidding wars are not uncommon, and in tighter markets they are leading to buyers escalating one another well beyond the property’s asking price. Whether you are looking to purchase a new home for your family or you’re trying to compete as a real estate investor, there are a few things you need to know to survive competition with other offers.
Money talks, and even when you don’t have your own cash on hand, it is still possible to get to the negotiating table with money behind you. The key is to establish loan preapproval. Most lending institutions will take a look at your baseline debt load and your income and calculate a rough average for what they would be willing to approve for you, provided that your eventual property choice meets certain requirements, usually based on its condition. When you put down an offer and you have a preapproval letter in hand, the seller knows your mortgage is not likely to fall through, and sometimes that is enough to make them take your offer over higher-dollar deals.
Invest in Pre-inspection
Asking to do a pre-inspection before putting down an offer is one way to let a seller know that you are serious, and most of the time permission will be granted. After all, if the home inspection is done before you put in a bid, that’s another way the seller knows that your offer is the sure, stable, closable sale they are looking for, and that might be enough to avert bidding wars with other buyers. Pre-inspection also gives you the opportunity to find out if there are any hidden issues that might cause the appraisal to come in significantly lower than the sale price. That is the tricky thing about escalating bids—sometimes, they escalate to a point where you need to have money on the table to go higher, because your loan coverage is maxed out.
Bid Early and Respectfully
The last step to avoiding the kind of escalation that might price you out of a property is to bid early, confidently, and with respect for the kind of marketplace you are in. That means being the first bidder if possible, coming in either just at or under the asking price, and remembering that you might have to revise your offer once or twice. The winners in bidding wars are the ones who understand how to get the deal they need by making things easy for the other party.