Get Sucked into a Bidding War or Walk Away? Dos and Don’ts for Homebuyers
You would think the highest mortgage rates in 20 years would have eliminated bidding wars from the market.
Unfortunately, they didn’t.
Many markets are experiencing multiple offer situations as if it were 2021 again.
As a first-time buyer with limited means, do you engage in a bidding war or walk? You don’t want to overpay or keep getting outbid.
Here’s how to approach the situation.
Don’t Get Too Attached To The Home
One of the most common mistakes first-time buyers make is getting too attached to a home. Their emotions take over and reason is put on the back burner. It comes down to scarcity. You feel that there is only one home like this and you’ll never find a better one.
This simply isn’t true. There are likely dozens of houses that will come on the market in coming months. You just haven’t seen them yet. Enter negotiations knowing you will have other options soon.
Do Make Offers Within Your Pre-Approved Range and Manageable Payment
You may be hesitant to make an offer at the top of your pre-approved range. But it may be necessary to finally get an accepted offer. Still, pull out your budget. Make sure the payment still works, since you can be pre-approved for a larger payment than you’re comfortable with.
Don’t Waive Too Many Protections
The seller’s agent may want you to do the following:
Waive the appraisal contingency and provide an unlimited appraisal gap
Waive inspections
Remove your financing contingency
Agree to accept any repairs costing less than a certain dollar amount
And more
The seller probably isn’t trying to offload a lemon. Rather, this is an effort to ensure the sale and increase profit.
Every buyer has their own comfort level with these issues. And a great agent can help you decide. But it’s usually a bad idea to lie down and give the seller everything they want.
Do Look For Homes Sitting On the Market
Sometimes you can find a decent home that has been on the market. Maybe it was priced too high or has cosmetic issues. For whatever reason, it didn’t garner the interest of buyers on its first weekend.
This is an opportunity to make a below-asking offer, get an inspection, have the seller cover closing costs, and request repairs.
You might be surprised at solid homes that have been passed over because of shag carpet and a 70’s kitchen – things that can be remedied quickly and at a relatively low cost.
Don’t Get Excited About Homes That Are Priced Too Low
Listing agents often price a home for less than it’s worth to cause a bidding war. Buyers get excited that they’ve finally found a great home in their price range. They get emotionally attached and bid it up by $50,000.
Perhaps they could have purchased a better home for the same price.
When a home is obviously priced too low, put in an offer, but walk away the second the frenzy starts.
Check your homebuyer eligibility. Start here.
Do Demonstrate That You’re a Serious Buyer
Sellers hate to see a wishy-washy buyer who will back out for any reason. Demonstrate that you want the home and are a serious buyer without giving the impression that you’ll pay any price. Assurance of a clean, fast sale is more valuable than top dollar to many buyers.
Related: Check Your Homebuyer Readiness With This Quiz
Don’t Hire a Mediocre Agent
A sloppy agent who submits offers with typos and mistakes and never responds to the listing agent won’t help your cause. Hire an experienced buyer’s agent even if you have to pay out of your own pocket due to new rules effective July 2024.
Do Find Out What’s Important to The Seller
You can do certain things as a buyer to accommodate the seller. Your agent can find out what is important to the seller, such as:
A fast sale
A place to stay a week or two after closing
Avoiding drawn-out repairs
In this situation, you could rent back the home to the seller for a few weeks or give them a few extra days of possession for free after closing. Agree not to ask for repairs costing less than a few thousand dollars. Offer the seller things that are important to them that may not cost you much.
Don’t Rule Out Fixer-Uppers
Nationwide agencies like Fannie Mae and Freddie Mac have made great strides with renovation financing. You can often qualify for a loan based on a home’s as-improved value, get a larger loan, and remedy issues that would otherwise disqualify the home from financing.
Do See If There Are Better Homes Available At Your Higher Offer
Before paying top dollar for a home, look at other homes in the market at that price. Sure, those may get bid up too, but there could be reasonably priced homes that are much better in the same price range. Examine recent comparable and completed sales. Did they sell for more or less than you’re offering?
Don’t Forget About an Escalation Clause
An escalation clause tells the seller that you’re willing to increase your price to a certain amount if they receive another offer. You can submit an “escalator,” as they are called, in increments. For instance, you can pay $2,000 above the next highest offer up to a maximum of $350,000. Escalators can be handy if there are one or two other bidders who come in near asking price.
Do Consider Waiting For the Off-Season
Finally, consider looking for opportune times of year. Consider the week between Christmas and New Years, Labor Day weekend, and other times when people are thinking about other things. Making an offer on the hottest home during the spring buying rush is a battle you’re likely to lose.
Don’t Give Up. Start Here
Remember not to give up. Your home could be days away from coming onto the market.
Be ready with a solid pre-approval letter from a reputable lender.
