The housing market is very tight. After several years solidly in the seller’s market category, supply is decreasing and demand is going up. Existing home selling prices have increased by 19.1% and the cost of building new homes is skyrocketing as construction supplies continue to climb the price ladder. This is one of the results of how the pandemic has affected the housing market.
As a result, bidding wars are becoming more and more intense, often regardless of the actual condition of the house being sold. As we pass through this period where new home construction is dropping, the market will only tighten, which means you could use some real tips on bidding for a house.
It doesn’t matter if you are young or old, moving to a new home or a millennial buying your first place, if you are trying to buy a house right now you need to know how to win a bidding war. Chances are you will end up in one!
Escalation clauses will give you a leg up
Escalation clauses work just like they do on eBay, except eBay simply calls it “automatic bidding.” Of course, escalation bidding is automatic in its own way. With an escalation clause, you’re essentially making a bid and including what you are willing to go to if your bid is outdone.
For instance, you bid £325,000 on a home and insert an “escalation clause” that states you are willing to increase your bid up to £375,000 in case someone comes along and outbids you. In this way, it’s essentially automated until and if you are outbid at £375,000.
Make a customised bid
Now, there are several ways you can do this. The most common way is to send a personal letter to the seller, explaining why you should be allowed to purchase their home over someone else. Sounds a little on the weird side, but you would be amazed at how some sellers are easily swayed one way or the other.
There are other instances where bidders have won the bid because they customised their offer to include the buying price, along with a one-year subscription to the seller’s choice of streaming service, local fitness gym, or including something of value in addition to the overall bid.
Including the seller’s costs in your bid
There are fees for everything and someone has to be paid to do the paperwork when a seller closes on a house. As a part of the bidding price, offer to cover the seller’s closing costs, such as title fees and commissions to the real estate agent.
You’d be surprised at how far such an offer will go because though someone might outbid you by £5,000, offering to cover the expenses afterwards can turn the corner in your favour, as that is one less headache the seller has to worry about.
Let the seller off the hook for repair costs
This goes in hand with the last two as you are modifying your offer to give the seller something outside of the standard bid. It’s a bit of a risk, so you don’t want to completely let the seller off the hook for any repair costs that are required.
However, maybe you could let the seller off the hook on the inspection side. Basically, this means that even if the inspection fails in some areas, the buyer won’t make the seller responsible for covering those costs and the seller will take on the cost.
Cash is king and no financing required
Paying in cash is a heck of an incentive for the seller as there won’t be an issue of default. Lenders don’t have to approve anything. Buyers can often wipe out their savings, secure the home with a cash offer, and recoup by refinancing later on down the road.
Show more than just your bid
Nothing is more irritating to a seller than a buyer getting cold feet at the last minute. As a buyer, secure a pre-approved loan, have all of your financial paperwork front and centre, and have your assets all lined up.
A seller may jump on an offer quickly if they can see that you are absolutely serious and have everything ready to go.
Show the seller that you are flexible
Make sure the seller can see that you are flexible and that you don’t have any “one last thing” to do moments coming up. The worst thing you can do is have the seller find out that you can’t make the purchase until you sell your own home first.
This way you’re on the same level with the seller with both you and they ready to move forward at a moment’s notice or at the convenience of the seller.
Embrace an appraisal variance
Also known as an Appraisal Gap Guarantee. Since lenders won’t often loan money that exceeds the appraisal value, the seller runs into the unenviable position of not getting the full amount from the bid.
An appraisal variance means that the buyer guarantees the seller that the buyer will cover the difference between the two.
Make the highest offer
Of course, this one is the most obvious of the bunch. It is a bidding war, after all, and when the dust settles, you want to be the one with the highest bid.
If you can get hold of the seller’s listing agent, you may be able to get an idea of what you’re up against and plan your point of attack from a more informed position.
Make sure you’re always the most interested
This goes hand-in-hand with making yourself constantly available. Stay informed about everything that’s going on throughout the process. Make sure that the seller has all of your contact information.
If the seller texts, emails, or calls and leaves a voicemail, be sure to respond quickly and let them know your level of interest and availability at all times.
For the most part, winning a bidding war on a home means that you have all of your bases covered, are available, consistently flexible, and are prepared to make the best offer you can possibly put forward.
Even if it means sending letters, dropping contingencies, or otherwise going a little outside of the standard bidding price. Winning a bidding war isn’t always just about having the most money. Making the seller comfortable is often worth its weight in gold.
About the author: This article was written by the team at Watson Buys, a site that makes “all things home simple, efficient, and enjoyable”.