Five Strategies to Avoid Getting Stuck in a “Bidding War”
Finding and buying a new home look so easy in the movies. If you set out to buy a house for yourself in the real work, though, you’ll find it’s not quite as simple as happening upon the perfect home and saying, “Yup, we’ll take it!”
In today’s real estate market, buying a home takes commitment, strategy and a dash of grit. Once buyers find that “just right” home, they often learn they’re not the only ones putting in an offer. It can be frustrating when you have already done all front-end work: getting pre-approved for a Home Mortgage Loan, determining the area you would like to live in and the features you want in your home. Now you’re at the finish line competing with other buyers who are determined to buy the same house.
If you find yourself in a bidding war, here are some tips to increase your chances of winning—without compromising your needs in the process.
1. Get Pre-approved Before House-hunting
Let’s back up a moment. Before you tour different houses and fall in love, it is crucial to secure pre-approval from a lender for your Home Mortgage Loan. It’s best practice for real estate agents to ask this of you so you’re set up for success, too.
If you make an offer on a home without a pre-approval letter attached, sellers generally will not entertain your offer as a reliable one. That means if you find a fantastic home and you don’t have pre-approval, you’ll need to scramble to secure it—and another buyer may jump in with an offer while you’re working to do so.
Get your pre-approval in hand, then look for a home with confidence!
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2. Choose a Local Lender and Real Estate Agent
Go with a reliable, local bank with pre-approval letters you can count on. Ask your real estate agent if your bank is known for issuing trustworthy pre-approval letters, or if it gives pre-approval letters that may not always actually result in being able to secure a loan.
Sellers also often prefer to see a letter from a local lender, like Great Midwest Bank, because we are known for decisive lending and meeting closing deadlines.
We recommend pairing up with a local real estate agent as well because they know the market in the area. They will help you find the right home for your needs and write a strong offer that keeps your best interests in mind.
This combination of a respected local lender and a knowledgeable local real estate agent helps you in many ways, not least of all by making you more attractive to sellers.
3. Lay Out Your Strategy and Ground Rules
It’s easy to get lost in the fast-paced action of pursuing a home you want to buy. Before you start making offers, establish with yourself and any co-borrowers how you want to approach the process.
Use a mortgage calculator to get a sense of what you can afford for monthly payments. What’s your budget? Are you willing to offer more on a home you really like? If so, what are your ground rules? Talk through what you are and are not willing to compromise on.
The more prepared you are before the home-buying process, the more confidently you can make an offer when the time comes.
While offering the most money might seem like the obvious way to win a bidding war, it’s important to know that sellers don’t always choose the highest offer. There are situations in which sellers might prefer offers that stand a greater chance of closing and/or that meet some of their other non-financial “needs.” That brings us to…
4. Find Out What the Sellers Need
You already have your pre-approval letter to show the seller you’re serious. Now, you can make your offer irresistible by meeting a specific preference of the seller. Have your real estate agent find out if the sellers need a quick close or if there are other wants or needs they may have. Accounting for these seller needs and writing them into your offer might be enough to tip the scales in your favor.
For example, the seller may want to stay living in the house for a period of time after closing while they find their new home. A buyer who is willing to accommodate this in their offer may have a better chance at their offer winning.
You may consider other ways to make your offer more enticing that tend to universally appeal to any seller.
Know Where NOT to Compromise
One example that we do not recommend is that some buyers will waive the home inspection contingency. Sellers like this because it means they will not have to deal with costly repairs or reducing the price of the home to account for problems found in the inspection. Skipping the inspection is unwise for the buyer because there could be costly issues that only an inspection will uncover.
An alternative that’s reasonable for many buyers and still enticing for the seller is to write into the offer that you’ll forgive a certain dollar amount of inspection issues that come up. That way, the buyer still gets an inspection—which is incredibly important so they know everything about the house they’re buying. It’s also attractive to sellers because they won’t have to worry about covering minor repairs. Adding something like this to an offer is also a way for a buyer to communicate to the seller that they will be easy to work with. Sellers like that!
5. Put Down a Higher Earnest Money Deposit
Sellers like to see cash. An all-cash offer can be tough to beat because it tends to make for a more speedy sale. For the majority of us who cannot make a cash offer, a large earnest money deposit may be another option to stand out to a seller.
Earnest money is the security deposit you put down on a home after your offer has been accepted and before closing. It is a good-faith sum of money that shows you are committed to buying the home. You’ll agree to certain terms surrounding the earnest money and may lose that money should you break the contract.
However, if you’re committed to buying this home and have some cash, consider putting down a larger earnest money deposit. This demonstrates to the seller that you’re a serious buyer and are less likely to back out of the purchase.
Approach Home-buying with Confidence
Once you’re ready to get into the home market, we’re ready to help you with pre-approval! Contact your local loan officer at Great Midwest Bank with any questions or concerns. The home-buying process can feel overwhelming, but we strive to make the Home Mortgage Loan process as stress-free as possible. We love getting our customers into the home of their dreams!
This post was originally published in March 2013. It has been updated as of August 2023.