According to the Sun Sentinel, foreclosure filings in South Florida have dropped about 58% since 2013. Statewide foreclosure filings have dropped 30% since 2013, following twelve straight months of decreases in foreclosure filings. Fewer foreclosures is good news, but fewer foreclosures means that there are fewer homes on the market for sale which is creating an inventory shortage. Currently there are lots of buyers and not enough sellers. Properly priced listings frequently go into bidding wars shortly after they hit the market. So how can you become the winning bidder when a bidding war breaks out?
Pay cash and prove that you can
If you are able to pay cash, put it in your offer. Sellers like to see cash offers without financing contingencies. They are looking for strong buyers who will be able to close quickly and without a lot of drama. It has been difficult for many buyers to obtain financing lately and conservative bank appraisals are coming in lower than the agreed upon contract price on a regular basis. Therefore, even if the buyer has good credit and the parties are in agreement as to what the home is worth, the bank may not be willing to make a loan to the buyer at the agreed upon purchase price because of a low appraisal.
If your offer is cash, you will likely be close to the top of the list of contracts being considered by the seller, but you will need to prove to the seller that you actually have the cash and you are not just looking to tie up the property with an attractive offer in order to renegotiate the contract terms later on. The best way to prove that you have the cash is by attaching your bank or investment account statement to the offer showing that you have the cash to close. Of course, for privacy reasons you will want to block out your account numbers.
Your cash offer will be weaker if you fail to attach proof to your offer that you have the cash. If you feel that doing so is an invasion of your privacy, that is fine, but you may lose the opportunity to buy the home that you want. When a bidding war breaks out, you may not have a second chance to improve your offer, so attach your proof of cash to the offer at the outset.
Shorten time periods
In most cases, sellers want to close quickly and do not want a lot of time between contract and closing. An offer with a closing date in thirty days or less of the contract being signed is strong and will grab the seller's attention. Even if the seller is unable to move out in less than thirty days, the fact that your offer says that you are willing to close that quickly communicates to the seller that you are serious and prepared. Of course, if you are obtaining financing, closing in thirty days or less may be impossible.
Other dates that you can shorten are the inspection period (seven days and not more than ten days is suggested) and your time to obtain a loan commitment (less than thirty days, if possible) if your offer contains a financing contingency. However, as a buyer you have very little control over your bank and how fast they are able to underwrite your loan. Not all mortgage professionals are equal. Do your due diligence before you start making offers to find out which lenders can get your loan done quickly; talk to Realtors and interview mortgage professionals before you make a decision on which mortgage professional to use.
Attach your mortgage preapproval to your offer
As stated above, you will want to do your due diligence on mortgage professionals and lenders before you start making offers. Once you find the mortgage professional that you want to work with, you should obtain a mortgage preapproval letter from them. The mortgage preapproval letter shows the seller that the mortgage professional has reviewed your financial standing and has made a preliminary determination that you can obtain the loan that you are seeking to obtain.
It is a good idea to get a preapproval letter for the highest loan amount that you are able to obtain. However, you may not want a seller to know that you can obtain a loan for $700,000 if the property you are making an offer on only requires a loan of $650,000 since the seller may look to negotiate the purchase price upward based solely on the fact that you have access to more money. Cross that bridge when you get there; obtain a mortgage preapproval for the highest loan amount that you are able to obtain and if you want to obtain one for a lower amount later on you might have the time to ask your mortgage professional for a revised preapproval if a bidding war breaks out.
Do not forget to update your mortgage preapproval with your mortgage professional at least every sixty days. Sellers want to know that the mortgage preapproval that you attach to your offer is not stale. A more recent mortgage preapproval is more reliable than an older one.
Ask the seller what they want in the offer
This might sound like common sense, but if you want your offer to be accepted you should have your agent ask the seller's agent what the seller wants in the offer. Few agents do this and it may give you the advantage that you need to be the winning bidder.
Submit multiple offers
If you do not have time to find out what the seller wants in your offer and you are not sure what contract terms that the seller might find to be the most attractive, then submit multiple offers and let the seller choose the one they like the best. One offer might contain a financing contingency with a high purchase price; another offer might be a cash offer with no financing contingency but with a lower purchase price or with an appraisal contingency. One offer might contain a thirty day closing date; another offer might contain a sixty day closing date. Giving the seller options might improve your chances of being the winning bidder.
In sum, to become the winning bidder when a bidding war breaks out on the home that you want to buy, your offer needs to be strong, it needs to stand out from the pack, and it needs to communicate that you are ready, willing, and able to close.