If you're looking to buy an affordable home in the Asheville, North Carolina area this spring, chances are you will find yourself in a bidding war. In fact, the nationwide shortage of affordable housing ensures that many people all over the country will find themselves in this exact situation for a few years to come. So what should you do if you end up pitted against other savvy buyers when you've finally found "the one?" Implement the following 8 tips to win the bidding war without getting roped into paying an exorbitant price for the home of your dreams.
1. Have your pre-qualification letter or proof of funds ready.
Listen, when I've got 4 offers on the table and three of them have pre-qualification letters and one doesn't, what do you think I'm thinking? "One of these things is not like the other..." I can't just go on you or your agent's word that you are pre-qualified or that you can get pre-qualified. Quite frankly, you're showing me that you will likely be a difficult buyer to work with that doesn't understand the realities of the home-buying process. And I'll wonder about your agent too, pondering why they would waste time showing you properties without proof of pre-qualification. If they don't value their own time or their own client's time, I can infer that they won't value my sellers' time either.
2. Offer more than asking price, but not too much.
Say, what?! How can you offer too much for a house? Listen, it's a common tactic to offer $1,000 above asking price in order to beat out all of those other "full-price" offers that will inevitably come in. But why not offer $15,000 or $20,000 over asking price? Because if the listing agent has done their job well, they've priced the house at the upper end of what it will appraise for. You can offer my sellers $15,000 or $20,000 (or hey, how about $100,000!?) over asking price, but guess what? If the house doesn't appraise for the value you're asking the bank to loan to you, my sellers will have to lower the price back down to around listing price in the end anyways. If you do want to employ the dramatic insanely-above-asking-price offer while still getting a loan, make sure the listing agent knows that you have cash in hand to make up the difference between what the house appraises for and the purchase price you are offering. Don't have cash in hand to make up the difference? Then don't employ this overly dramatic offer tactic.
Two caveats to this advice... 1) If you are paying cash and have proof of your funds (see #1 above), then offer whatever your little heart desires and 2) Some listing agents employ the tactic of dramatically under-pricing a property to purposely create a bidding war. Clearly if that is the case, you could actually offer a significant amount above asking price and have the house still appraise. Consult your local real estate expert for advice on any properties you may be considering making an offer on.
3. Get pre-qualified with a major bank that has a local presence in the community.
This is one of those things that will probably matter more to the listing agent that is advising the sellers than the actual sellers themselves. You know what ends up delaying settlement 9 times out of 10? Bad lenders. The devil really is in the details when comparing offers in a bidding war. Two identical offers accompanied by two different pre-qualification letters can actually make a difference. Consider offer #1 that is accompanied by a pre-qualification letter from a local credit union that has a reputation for being easy to work with and always closing on time to offer #2 that is accompanied by a letter from an online bank that doesn't require any upfront paperwork in order to provide said letter. How likely do you think the sellers are to pick the offer that has the pre-qualification letter, not only from the local credit union, but from their own bank that they have come to know and trust? Again, this might not make a difference, but it just might.
4. Hire a reputable real estate agent that is trustworthy and likable.
It seems silly to say, but if your agent isn't likable, the listing agent isn't going to want to work with them (and will advise their clients accordingly). Again, let's consider the 4 offers scenario. Two offers have well-known agents with great reputations, one offer has an unknown agent with no reputation, and one offer has an agent I've worked with three times in the past two years that canceled contracts at the last minute, was nitpicky over minor inspection items, constantly threatened that his clients were going to sue my sellers, and was an overall PITA to work with. Think I'm going to share that information with my sellers? Absolutely. I know what you're thinking though...But what if he genuinely has the best offer? My job is to make sure my sellers are 100% informed. If they want to move forward with Mr. PITA's clients, then we move forward with Mr. PITA and his clients. But in a bidding war, it's likely that the terms of the offers will be so similar that working with Mr. PITA and his clients would be an unnecessary hardship. Also, sellers can be so desperate to sell quickly that they will actually accept less money to work with an agent whose reputation screams "sure thing." And on that note...
5. Make sure your agent lets the listing agent know how easy you will be to work with.
Listen, as the listing agent, I don't know you. It's up to your agent to convince my sellers that they want to work with you. You know what I advise my clients to disregard? Sappy cover letters about how much the buyers love the house, how it would be perfect for them, a long list relaying all the hardships they've had to endure in life before finding this "perfect" home, etc. This is a business transaction and I advise my clients to approach it as such. I do not take the personal lives of everyone that is presenting an offer into account when advising my clients about which offer is the strongest. What are you bringing to the table business-wise? An agent telling me that their clients are super easy to work with, that they're not interested in addressing minor home inspection items, that they're happy for the sellers to take or leave whatever they'd like, and that they will make every effort possible to close on time gets my attention.
6. Drop the contingencies.
Certain contingencies are unavoidable (for instance, if you need to sell your current home in order to purchase a new one), but it's important to know that with every contingency you place in your offer, it gets weaker and weaker. Again, let's go back to the 4 offers scenario. If three offers don't have a home-sale contingency but yours does, even if your offer price is a little bit better than the others, it's not as strong of an offer because we are relying on a third party (the buyers of your home) to get this deal to the settlement table. If my sellers are in a hurry to close, they're likely not going to want to take the chance that your home sale falls through, thus invalidating our contract. Let's consider another scenario, where two offers have similar terms but one offer leaves open the possibility of the buyers to negotiate payment for repairs after the home inspection and the other offer has an "as-is sale" clause negating any future negotiations. Don't you agree that the "as-is sale" offer is stronger overall? Not having to worry about all the little things the home inspector will inevitably find (because that's their job) is a big plus to sellers. Kick out as many contingencies as you can to show the sellers how easy you are to work with (see #5 above) and how willing you are to make this a smooth transaction for them.
7. Shorten all your timeframes.
If you can't get rid of your contingencies, at least make them short in duration. Here in North Carolina, we have one due diligence period for the buyers to get everything done that they need done. Do you really want to make that timeframe 30-45 days in order to include time for your financing to get approved? If you're not willing to bet your Earnest Money Deposit on getting approved for your loan, then I'm not betting on you getting through the approval process easily either. People that are confident they can get their inspections done quickly and that they will be approved for their loan shorten this time frame to two weeks or less. Having a capable lender will not only provide you with a strong pre-qualification letter (see #1 and #3), but it will allow you to move the settlement date up too. The difference between closing in 35 days or closing in 47 days can mean a lot to some sellers.
8. Increase your Due Diligence Fee and Earnest Money Deposit.
Money talks. If you don't have cash to complete your purchase, inspire confidence in the sellers by putting up a large Due Diligence Fee and Earnest Money Deposit. In conjunction with shortening your timeframes, this will show the sellers that you are serious about getting this deal to the settlement table and are willing to put your money where your mouth (offer) is. In reality, the Due Diligence Fee is more important to my sellers since they get to keep that money if you back out of the contract, no matter what. A large Earnest Money Deposit with a long due diligence time period doesn't really mean a whole lot, but a large Earnest Money Deposit with a short due diligence time period does. Do what you can to have the timeframes and upfront monies work together so your offer stands out from the crowd.
Again, in a bidding war multiple offers come in at the same time with similar terms. While on their own some of these things wouldn't "make or break" an offer, it's likely that these small things can make a difference with competing offers. Make sure you consider all aspects regarding your offer up front before putting it in writing and having your agent present it to the other side. In my experience, the right houses find the right people—not the other way around. Just do your best when presenting your offer and I am confident that the right home will pick you.