If you are buying a home in the current Metro Denver highly competitive seller’s market, you may find yourself in the midst of a real estate bidding war. Competing against all those prospective buyers may bring out the fighter in you, but before you decide to go all out in your battle, you need to step back and evaluate how much you really want that particular home and the maximum you can afford.
Should You Compete in a Bidding War?
In the current Denver real estate market, you may loose sight that your end goal is a home you love and, most importantly, one you can afford to own. If your offers have been turned down by several sellers because of competing buyers, then you may feel pushed to make an aggressive offer on the next home. You should never compete just because you think the time is right to become a homeowner or you want to move up. Instead, try to focus on whether you really want that particular house enough to fight for it.
To guard against making an emotion-based offer for a house, take a hard look at your finances. While it may feel good at first to beat out other buyers, it won’t feel so great in a year or two when you are struggling to make the payments on a house you can’t afford. Know your limits before you begin to bid and stick to them.
Prep for Battle
Your first step before entering a bidding war should be to consult with a lender to find out the maximum amount you can borrow and to evaluate how much cash you will need to outlay, without draining your reserves. Next, make sure you hire an experienced real estate agent who can share information about current market conditions, advise you on how to structure your offer to be competitive and communicate with the seller’s agent. Be sure to do your own market research as well: visit a lot of homes in the area where you want to buy so you understand the value of various properties before you make an offer.
Bidding War Strategies
Your real estate agent should work with you to craft a strong offer based on the list price for the home, a comparative market analysis of similar homes, and information gained from the sellers’ agent about the sellers’ motivations and preferences. In a bidding war, it’s important to work with an agent who will move quickly to present your offer and any counteroffers. While you may assume the highest offer is the number one motivator that steers sellers to one buyer over another, there are other ways to make your offer attractive, such as:
Solid financing: You most likely will be competing against cash buyers, so make sure your loan pre-approval is solidly in place. A good strategy once your offer is submitted, is to have your loan officer call the listing agent to introduce themselves and explain how well-qualified you are to purchase that property. Many listing agents will call the lenders of the buyers whose offers are strongest on paper in an attempt to feel them out about the buyer’s qualifications. Preemptively taking this step is a smart approach that makes it easier for the listing agent to influence the seller to accept your offer.
Eliminate contingencies—carefully: If you currently own a home, you may want to consider not making your offer contingent on the sale of your current property. You take the risk of carrying two mortgages for a while, so make sure you can safely handle the payments. You can also decide to have an “information only” home inspection rather than making your offer contingent on the outcome of the inspection.
Make the settlement date convenient for the sellers: Rather than negotiating on a closing date convenient to all parties, you can tell the sellers you will work with their schedule or provide a rent-back on the property to them after the closing.
Offer to pay all closing costs: You can reduce the sellers’ out-of-pocket costs by offering to pay their share of the settlement fees. Before you do this, make sure to get an accurate estimate of what those costs will be and make sure you have the funds available.
Personalize the transaction: Sometimes the tipping point for sellers who receive multiple offers is to connect with them on an emotional level, as well as, financial. A personal letter with your photo describing your love of their home may be what ends up getting your offer accepted.
Try an escalation clause: Money talks, so consider adding an escalation clause to your offer that increases your bid by a certain amount above other offers. Just make sure you set a limit on how high your offer will go.
Control yourself: Remember that any offer is subject to an appraisal, so be careful not to bid too much above the market value of any property, as you will need to cover the difference if the appraisal value is less than the sale price. A more aggressive strategy is to offer the seller the difference if the property appraises below your offer price.
Let the professionals at the Bandy Team help you buy or sell a Denver property, contact us for a no-obligation consultation. If you’re thinking about buying a home, we can show you some terrific properties for sale in Castle Rock and real estate in Highlands Ranch, as well as homes in Aurora.
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The Bandy Team
Keller Williams Park Meadows