Trying to buy a home in today’s market can be rough. The Pandemic has motivated a lot of people to look for a home, but also kept a lot of people from listing their home so options are often limited. One of the more challenging parts of any home search is happening more frequently now – competing against other buyers in a bidding war. Here are some things to consider if you find yourself in the same situation.
Know what you can afford – This is extremely important for all buyers, especially first-time home buyers who have never been locked into a mortgage payment. There is a lot of emotion that goes into buying a home, and it is easy to let those emotions get the best of you. Work with a mortgage broker to figure out the maximum amount of house you can afford and be prepared to walk away if a home does not fit in your budget.
Get pre-approved – Sellers want to make sure that at the end of the day, the sale is going to go through. Pre-approval letters are necessary in today’s competitive market. You can even go one step farther and have your lender prepare a pre-approval letter that is specific to the property you are bidding on. This will help show that you have the financial wherewithal to purchase the home.
Increase your down payment and earnest money – A higher down payment and more your earnest money (the deposit made when you make an offer) shows the seller that you are serious. A higher down payment can be enticing when a bidding war is pushing the selling price above the potential appraised value. In our market you can also regularly be competing against all cash buyers so appearing financially strong is particularly important.
Offer above asking price – Most sellers will sell to the highest bidder. However, that does not mean you have to offer tens of thousands of dollars more. Often, just going up a few thousand dollars can make the difference between winning a house and losing out on it. You will need to keep in mind that just because you are willing to pay more, your lender may not be. Your loan cannot exceed the appraised value of the home, so you will have to cover anything over the appraised value by bringing additional cash to the closing.
Consider waiving contingencies – This tip is not for everyone. While some buyers are willing to go to extremes and will waive financial and inspection contingencies to show how badly they want a house, it can come at a price or at least some sleepless nights. Contingencies give the buyer the ability to back out should financing fall through or renegotiate terms and price or walk away if the inspection turns up major issues. Waving one or more contingencies could be what it takes to get the house, but you will need to decide if it is worth the risk.
Be flexible – Make it easy on the seller. Although some sellers may want to move as quickly as possible, others may want to stay in their home longer if they are waiting on new construction or would like their children to finish the school year. If you can, agree to a closing date that accommodates their needs or allow them to stay in the house for a few days without compensation following the closing. If they need more time, consider allowing them to rent back the house for a set period following the closing.
Regardless of your strategy, sometimes you are just going to be out bid. You should not be discouraged by that. Even when inventory is low, it is important to remember that more homes that you like will come along. While it might take some time, you will find the home that is right for you.