Updated: Mar 18
So you have found the home of your dreams, it has all the features you want, and it is in the right neighborhood. Even the price is right, but suddenly you find yourself in a bidding war with one or more people who also think this is the perfect home. This can be a stressful and sometimes even heartbreaking experience, but what knowledge should you arm yourself with before entering a bidding war with other potential buyers? Here are a few important tips to remember in order to get the house of your dreams without breaking the budget.
Know Your Budget
Having a good idea of what you can afford and knowing your target price can really prevent you from making a bid that you may ultimately not be able to honor. The best way to do this is to get pre-approved for a mortgage before you begin house hunting. That way you will be certain of what you can afford, and if you do find that perfect house you will be able to move quickly to make the purchase.
Know Its Value
While the home for which you are involved in a bidding war may be the house of your dreams, paying considerably more for it than it is worth is never a wise choice. To avoid getting yourself into this situation, do your homework before making an offer. Look at the value of similar homes in the area, and contact a real estate agent or expert to determine the fair value.
Know What You Are Paying For
Getting the results of a home inspection, determining what features actually come with the house, and knowing how much you will have to spend to get it in livable condition will give you a clearer picture of what you are paying for, what comes with the house, and what your budget can hold.
The fears in any bidding war are that your bid will not be the highest, or that the bidding will keep raising the price higher and higher. To prevent this from happening your best approach in any bidding war is to bid right the first time. If you are prepared to bid, making your best offer first time around will prevent your bid from being rejected due to another higher offer. Bidding odd amounts can sometimes make the difference between your bid or another being the highest.
More Earnest Money
Earnest Money is typically 1%-3% of the sale price of the home. Offer a bigger earnest money to reassure the the seller of you intention to purchase the home and have the resources upfront.
Shorter Due Diligence
Offering a shorter due diligence period can help put the seller's mind at ease. In a seller's market, no longer than 7 calendar days maximum. Asking for a longer than normal period makes the seller worried a buyer will find some reason to back out – and waste more of the seller's time. A quick inspection period indicates you're serious about the purchase.
The more contingencies on an offer the less attractive it would seem to the seller. More contingencies means more things can go wrong on the sale and more likely it can fall through. Your offer would be more appearing if it has less contingencies and shorter time frame on the contingency especially during a bidding war.
In general, being caught in a bidding war for a home you really want is always a stressful situation, but armed with these few tips you can end up with the house you want at the price you are prepared to pay.