The real estate market's thawed out, and the bidding wars of pre-recession America are coming back with a vengeance. Homes that might have sat on the market for months a few years ago are now getting multiple bids, and if you want to compete with other homebuyers, you'll need to know how to win a bidding war.
You might be surprised, but it's not the highest number that always wins. Sure, a big number might impress a seller and get your bid accepted, but why bid more than you have to when there are some easy ways to get your bid noticed, even if it's not the highest?
Three Ways to Win a Bidding War
1. Finances First, Search Second
If you plan to buy a home in the next six months, some preliminary searches and a look at market trends are smart ways to know what's out there. However, you want to talk to a bank well before you bid on any home.
You've probably heard the terms "prequalified" and "preapproved," and you probably won't want to pay much attention to getting prequalified unless you're unclear about the amount of mortgage you can afford. According to the Consumer Financial Protection Bureau (CFPB), that's just your lender's estimate of appropriate loan size for your income level.
Preapproval, on the other hand, is the golden ticket. With preapproval, your lender is all but ready to let you sign on the dotted line for your mortgage. Sellers love seeing a bid where the buyer has preapproval because that means no lengthy wait to get the transaction completed.
Remember: A preapproval letter is one of the only ways you can compete against buyers with all-cash offers.
2. Search Below Your Max
Let's say your bank just told you you're preapproved for a loan of $450,000. You start looking for homes around that price range plus your down payment… right?
Wrong! If the market is hot and you're likely to enter a bidding war, you need to look at homes a little below your maximum bid. You don't want to find the perfect house only to have it bid up to an amount that's out of your reach!
Even worse, you don't want to get into a bidding war where you offer an amount that puts a financial strain on your family. Search and bid responsibly. Your future financial health may depend upon it!
3. Save, Save, Save
Depending on your lender, you might only need to save 3.5% for a down payment (for something like an FHA loan), but if you feel a bidding war coming on, you want to come to the table with as much of a down payment as you can afford.
20% is a great number to shoot for, and will give your seller confidence that if something goes awry with the transaction, you'll be able to make up the difference. For example, the appraisal might come in at a lower number than you anticipated, which means you'll need to make up the difference in the loan amount.
Want to make sure your bid turns into a successful transaction? You'll want to work with a real estate lawyer to make sure everything goes as planned. Request a Free No-Obligation Real Estate Consultation to learn about our real estate legal services.
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Fascinating Facts of Real Estate
Did You Know:
- The net worth of a homeowner is more than thirty times the net worth of a renter.
- The average price of a home bought by a first-time homeowner was $170,000 in the U.S. in 2013.
- Homeowners in Scotland paint their doors red when they complete payments on a mortgage.
- The Japanese invented a hover house that levitates to avoid earthquake damage.
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Win That Bidding War
To get your bid accepted, remember the following:
- Get prequalified with your lender
- Search conservatively, under your max
- Save a healthy down payment
This article above appeared in the Suburban Legal Group Newsletter: How to Win a Bidding War for Your New Home | Issue 39 | August 2014