In today’s market, inventory is tight. There are certainly more buyers offering on attractive properties than at any time since the great recession. Once you have found your dream home, you may ask, “How do I win a bidding war when there are multiple offers on a property?” There is no simple answer to resolve this, but there are some strategies that you can employ which will give you an edge over the competition. Let’s explore the options.
Increase Your Purchase Price
There is no doubt that money talks, and if you really want to secure that must have home, ensuring that your offer is the highest will do the trick. In a sellers’ market, having an expectation that you may have to pay over the asking price to secure a property can be an unfortunate reality.
Offer Attractive Financing
There are three basic financing types:
1. Cash – Offering cash will be more attractive to a seller than any other type of financing.
2. Conventional or government mortgage – If you’re like most people and don’t have a large bundle of cash laying around, then you’re probably going to be offering a purchase agreement with mortgage financing. Mortgages can be complex and time consuming compared to cash. This presents an extra layer of risk to the seller. If possible, try to talk with your lender about conventional vs. government financing as well. Conventional financing is typically preferred and often recommended by listing agents to their sellers over government financing. If you’re financially capable, you might increase the amount on your pre-approval letter in consultation with your lender. This will show capacity to the seller.
3. Land contract – This is used in situations where a traditional mortgage may not be available. There are a number of reasons why a traditional mortgage may not be available and in these situations, a land contract would allow the seller to finance the borrower.
Increase the Buyer’s Contribution
There are two ways in which this can be done. The first involves increasing the deposit offered. Typically, in the Southeastern Michigan market, earnest money deposits (EMD’s) often range from $1,000-$10,000. Offering a larger deposit signals strength to a seller and a willingness to commit to the transaction.
Along the same lines, but slightly different, is the strategy of increasing the down payment. If a seller has two conventional offers at the same price with the same terms except one is 5% down and the other is 20% down, the seller should look favorably upon the 20% buyer as the perception is that they have more financial capacity.
Choose a Great Agent!
When we are a considering a property purchase, just like any important decision we make in life, it is important to choose professionals that can support you. You wouldn’t let a surgeon operate on you if you didn’t think he was appropriately qualified, right? Same goes for what is probably the most important financial transaction of your life. Maybe your cousin Johnny who just got his real estate license is not the best choice for the job.
There are a number of ways in which an experienced professional real estate agent can give you an advantage. Experienced, quality agents more often than not have established relationships in the industry (it’s a small world). They will able to speak to the listing (sellers) agent and find out the circumstances of the sale or what the seller looking for. Some examples of which are below:
1. Do they want to close quickly, by a certain date perhaps?
2. Do they need occupancy (rent the house back from you for 1-60 days post-closing)?
In consultation with your agent one can also employ strategies such as:
1. Removing the inspection clause – Be wary of this.
2. Escalation clause – This is where the pricing will increase by a specified amount above the highest offer up to a certain amount.
3. Appraisal guarantee – This guarantees that the buyer will pay a certain amount over the appraised value. Make sure you include a cap to this because this could end up costing you a lot of money if the property appraises low.
4. Agents – A good agent can also help you craft a personal letter to the seller. Surprisingly, the heart strings can be pulled with some sellers so this may make a difference!
If you try some or all of these strategies and for some reason you still miss out on the deal, make sure your agent stays in contact with the seller’s agent because deals fall through all the time. You might be lucky enough to be the next best offer in line.
Good luck out there and happy house hunting!