It's the middle of summer and the real estate bidding wars are in full swing. The combination of historically low interest rates and a lack of available homes for sale is fueling an unpresidented buyer frenzy. In comparison to one year ago, interest rates are down by over 1% and the inventory of homes for sale is down a whopping 40%. This is leading to desperation amongst buyers to secure hot new listings. A recent survey showed that almost 60% of available home listings are receiving multiple offers. If you want to win a bidding war and don't have infinite cash you will need to be creative, here are my 5 top ways to win that bidding war.
Get Fully Pre-Approved- When you first meet a mortgage lender they will have you fill out an application, whether it is online or in person the first thing they will do is run your credit report and submit your application to an automated approval system. This system can tell them very quickly if you can or cannot be approved for a mortgage, if the automated system approves you then you are considered pre-qualified. However in this uber competetive market you need to go further.
Getting Pre-Approved will make your offer stand out amongst the other home suitors. In a full pre-approval the lender will collect your most recent pay stubs, bank statements and tax returns, all of this information will be provided to the underwriter who makes the final decision on whether your loan is approved or not. After reviewing and verifying all of your infomation you can be fully pre approved. If you were a seller, would you choose an offer from a pre-qualified buyer or a pre-approved buyer?
Earnest Money- This is the deposit that is held in escrow while you are performing your due diligence. It will be held by the title company and credited to you at closing towards your down payment or closing costs. While a $1,000 earnest money deposit is adequate for most houses, in a competive situation you will want to offer more. A larger earnest money deposit shows that you are serious and committed about the offer you just made.
Adding an Escalation Clause- When a home get's into a bidding war, it can be hard to know what other buyers offered. You may be willing to offer $20,000 more than list price but would be upset to find out the next highest bid only offered $10,000 more. With an escalation clause you can offer a specific price and then add a clause that says "Buyer will pay $1,000 more than any verifyable offer up to a specific price. This allows you to hedge you bet against way overbidding the next closest offer.
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Accepting in As-Is Condition- This is not for the faint of heart, the idea of agreeing to accept a home with all of its faults can be very scary. Accepting as-is doesn't waive your right to home inspections and doesnt waive your right to cancel if the inspections turn up major deficiencies. Willingness to accept a house as-is can be very enticing for sellers, most sellers don't want do repairs to their home right before closing and offers that agree to accept their home without repairs get moved to the top of the pile.
Agreeing to make up Appraisal Shortage- When buyers start making offers that exceed the list price, sellers get worried about the possibility that the home may not appraise for the price offered. To help alleviate this concern you can add a clause to your offer stating you will make up for the shortfall in the appraisal. This can be the full amount or a certain portion, the only negative is that you will need to have the extra cash to put down over and above the down payment you already planned to bring.
While these are great ways to make your offer stronger, nothing replaces an experienced negoitator on your side. Mike Russell & Associates has over 20 years experience and we know how to get your offer noticed by the seller and accepted over competing offers.
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