A bidding war for a home buyer may be exhilarating during the time of negotiations, but the struggle can quickly spin out of control for buyers who aren't careful. But winning a bidding war isn't always about driving the price up far outside a home buyer's original budget. For a better chance of truly winning a bidding war without going overboard, keep the following tips in mind long before the first offer is ever put on the table.
Bring Your Preapproval Letter
Prequalified mortgage approval statements and mortgage preapproval letters are very different things to a home seller. Sellers want to know that the buyer is serious about their purchase and that their loan is likely to go through without a hitch. So unless the buyer is prepared with an all-cash offer, their pre-approval letter is the next best thing. This letter shows that an underwriter has already been through the buyer's financial information, as opposed to a prequalified statement which only takes into account the buyer's income as compared to their budget. While pre-approved loans may still fall through for any number of reasons, it's still a good place for buyers to start.
Consider an Escalation Clause
Many states allow clauses or amendments in purchase and sale contracts called, "escalation clauses". An escalation clauses state how much a buyer will pay for the home in the case of multiple bids. For example, they may state that the buyer is willing to pay up to $200,000 on a home that's priced at $198,000 in the case of multiple offers. They're typically submitted by the real estate agent as part of a purchase offer, and they're designed to protect both the buyer and the seller. They both ensure to a seller that the buyer really does want the home, and they put a hard cap on the buyer so their emotions can't drive the sale.
Experts recommend staying within a reasonable amount of the total cost of the home should buyers choose to include an escalation clause. These clauses can be valid for up to 20 days in the case of another buyer being chosen who ultimately fails to come through with the promised funds. When using an escalation clause or simply bidding up the costs of a home, remember that if the home is being mortgaged financed, there is a possibility it will not appraise if the selling price becomes too high.
Offer Additional Perks
Buyers who know what a seller is looking for can sometimes win bidding wars without ever upping their offer. Is the seller in a hurry to leave their home and start their new job across the country? Buyers can promise an expedited escrow and pushed-up moving dates. Does the seller look exhausted by the mere mention of contingency clauses? Ask the real estate agent to streamline the paperwork by reducing the demands so there's less effort on the seller's end.
The more a Wasilla home buyer stresses to the seller how easy they can complete the sale, the more likely it is that sellers will start to see the value of trading a few extra dollars for a lot less hassle. For example, if one bidder is offering more for the home but needs the seller to first make several repairs to the home as the result of a home inspection (including rewiring the entire kitchen), the seller could very easily trade the higher bidder for a more flexible buyer.
Bidding wars are an opportunity for buyers to use their street smarts to come out on top. And while every situation is different, it all comes down to finding different ways to work within the home buying framework. Seeking the advice of a real estate expert can also help buyers come out on top.