In a sellers’ market — when the supply of homes for sale is low and buyers are plentiful — you could easily find yourself competing against other buyers for a home. What are some of the things you should consider before joining the bidding competition? And if you do jump into the fray, how can you improve your chances for success in purchasing the home of your dreams at a fair price? Here are a few pointers:
Before You Put Your Offer on the Table
Understand how multiple offers work. Basically, a multiple offer scenario means that the seller has his/her pick of two or more purchase offers. The seller can accept one of the offers, reject all of them, or begin the counteroffer process. A counteroffer does not stop the seller from entertaining other offers while waiting to hear from you. If a better offer comes along, the seller could rescind their counteroffer before you have a chance to respond. Sellers have no obligation to respond to offers in the order they are received. Nor do they have to reveal the status of other offers to competing buyers. And in negotiating, the seller has increased leverage and may use it to improve price or terms.
Decide if this is the absolute right home for you. Try not to let the competitive market conditions create a halo effect on the home. Sometimes we find things even more attractive when competing against others to obtain them. Make sure that this is the home you would buy regardless of the market conditions.
Know your limits. This includes how much you are willing and able to pay, as well as what you are willing to give up in terms and conditions. By getting a handle on your limits up front, you can better determine whether you should even make an offer. And if you do make an offer followed by negotiations, you will be less likely to let emotions of the moment unduly influence your actions.
Know that the highest bid isn’t always the one accepted. Price is not the only consideration for sellers. They are looking for the offer that best meets their combination of needs. They may need to close quickly due to a job transfer or a move to another home. Or they might need to stay in the home for a period of time following closing. In these instances, timing of closing and possession would be factors that weigh into their decision process in addition to price.
When Making Your Offer
Open strong. In a hot sellers’ market, you may not get a chance to negotiate. So make the most competitive offer you can within your established limits. Keep the offer as clean as possible – uncluttered by lots of contingencies – but do not waive contingencies that are important and in your best interest. A contingency is a written provision that must be satisfied before the contract is binding. Contingencies can cover areas like home inspection, appraisal value, clear property title, or financing. If you have to sell a home first, you could include a “contingent upon the sale of your existing home” clause. In a sellers’ market, however, this can quickly kill an offer. Why should a seller wait for you to sell your home when buyers are lined up?
Be ready, willing, and able to close the deal. Act with a sense of urgency and show that you are serious. Getting pre-approved for a mortgage loan is very helpful in this regard. A pre-approval letter demonstrates that a lender has already considered your financial situation and is ready to proceed with your loan. You are essentially making an offer with the money to back it up.
Be flexible. If you do get to negotiate, do so with as much generosity as you can muster. Be reasonable and the chances are good that the seller will do the same. Don’t get into nickel-and-dime negotiating tactics. Instead, make a concerted effort to reach reasonable compromises that are win-wins for both of you.
Knowledge and preparedness are two of the keys to success in buying a home when bidding wars abound. Know what the market has to offer, determine the selling prices of comparable homes, find out as much as you can about the seller’s needs, and be ready and able to seize a good value.