If you’ve kept up to date with the news, you know that mortgage rates are low. So low that they’re approaching historic levels. It’s logical to assume that as mortgage rates get lower, the number of people applying for them is getting higher. National numbers confirm this.
Redfin reports that the housing market during June was the most competitive market since the publication began tracking it, during 2009. This wasn’t just a national trend; home sales in the Miami area increased for the first time since November 2015, resulting in prices that were the highest since February 2012.
Nationally, the average home closed 41 days after it went on the market, a four day improvement over June 2015. And that’s just the average…a few duds may have actually kept that number high. Redfin also reports that more than 25 percent of homes closed within two weeks.
The downside of great rates is that you, as an applicant, are less likely to land the home of your dreams because everyone else is thinking the same thing. It becomes even more beneficial to have a strategic approach during a shortage of homes. Here are four great ways to seize a competitive edge when bidding on homes.
01) Come Pre-approved
When is a dollar worth more than another? When it’s guaranteed.
Selling a home is a scary experience. It’s not as simple as listing a price and then a buyer deposits that amount in your bank account.
The trick is to differentiate yourself from other potential buyers by coming to the table prepared with a pre-approval from a trusted mortgage agency. This will give a seller the confidence to move forward with a buyer, knowing that the bid amount is more than just hypothetical. Some buyers will even prefer this confidence over a higher bid; If another buyer offers $10,000 more than you, but can’t back it up with a pre-approval, many sellers will opt to play it safe rather than wait for the other bidder to get proper paperwork.
Get in touch with a qualified mortgage lender in advance so you can act quickly to show up with a pre-approval when you find the house.
02) Get It Right The First Time
There has long been an art to bidding. The first move is to come in below the asking price, hoping to earn yourself some negotiating room and then work your way up to just a little below, ultimately securing a discount.
This option is less likely to come through in the current market. It’s always been a rule not to lowball the seller with a terrible undervaluation, lest they rule you out of the running for good. Currently, sellers are less urgent and are less likely to accept low offers. Prepare to come in near face value. The same Redfin study showed that 95.5 percent of homes sold at the listing price, if not higher.
You can improve your odds further by bringing more cash to the table. A higher down payment upfront could easily set you apart from more heavily-financed competition.
Don’t be afraid of coming in below the asking price, but be prepared to raise your bid quickly.
03) Establish an Escalation Plan
This is what we mean by “be prepared to raise your bid quickly.” There’s a fine balance between low-balling and showing your hand. It’s important to have a maximum bid in mind, but you don’t want to lay it all on the table upfront.
Use your pre-approval to establish what that maximum bid is, and then to develop an “escalation plan” with your realtor. If someone else offers more money for the home, how much do you want to up the ante? Again, don’t just respond with everything you’ve got: Be prepared for a few more rounds of sparring.
For example, if you’re willing to go $60,000 higher than your original bid, consider raising your bid by $20,000 every time someone passes your offer, until you’ve reached your maximum. If your opponent doesn’t have a plan for moving forward, they might get shook by a quick counter-bid and bow out.
04) Gain An Emotional Advantage
The previous three methods for emerging victorious from a bidding war are based on facts and finances. And, usually, that’s all any seller is looking for. But what if that’s not enough? What if the other bidder has matched you on almost every financial front?
Now you play the wildcard: emotional appeal.
Maybe you take another tour of the home. Certainly don’t lie, but make sure to emphasize your positive plans for the property. “That would be a great room for a child”…”it would be easy for dad to maneuver around if he comes to live with us”…even something as mundane as “can you imagine how many cookies I could make with this oven?”
People love their homes. They’ve spent years maintaining them. If they know that the next owner is just as dedicated to the things they love about it, or has bright future plans, they’ll be more willing to trust you with it.