Last week, we explored five ways that you can find great values on homes, even in a seller’s market. As we hinted, however, the current demand for homes means that you’re going to face competition when bidding for these properties. You’re not the only one looking to get a great deal on a home!
This week’s post tackles an even more important question: If many people are bidding for the same value, how can you win?
Nothing is guaranteed in a market like this one, but if you take advantage of these five tips, you’ll greatly improve your odds. It doesn’t necessarily mean spending more, but it does mean having a strategy in place.
1. Come in Preapproved
This is not a suggestion…this is a must. We always recommend that buyers have a Preapproval letter going into the homebuying process, but it is essential when bidding on foreclosures, short sales, or other value properties. Many of these sales are handled by banks or other agencies, which value efficiency almost as much as recouping their losses. Preapproval is a great start to a quick closing.
2. Bring Plenty of Cash
If efficiency is your goal, nothing beats a cash offer. Mortgages can take up to 30 years to complete, while cash is instantaneous. Few buyers can completely cover a home purchase with cash. That said, the more you can put down, the better you look in the seller’s eyes.
For example, two buyers may make offers on the same home. Buyer A offers the asking price, and Buyer B offers 5% more than the asking price. However, Buyer A also offered to put 30% down, while Buyer B only wants to put down 10%. Most sellers will choose Buyer A because of how much they offered upfront. In some cases, you can even win with a bid lower than the asking price, just by offering a high down payment. Another benefit to this strategy is that you generally escape Mortgage Insurance requirements with a down payment of more than 20%.
3. Set A Bidding Cap
The current demand for homes means that bidding the asking price won’t often win you the home. Consider how low prices are for foreclosures, short sales and similar value properties, and you are still getting a great value even when you bid high.
One way to stay atop the competition is to establish a bidding cap. This cap represents the maximum you are willing to pay for a property. For example, you may bid the asking price for a home, and inform the seller that you are willing to bid up to 10% above asking price. This keeps you on top within reason, and without needing to make constant counteroffers.
4. Be Flexible on Move-In Dates
This strategy is most effective with short sales, where the owner is negotiating with their financier to sell the home for less than the remaining value of the mortgage. If you remember from last week, the bank or lender is hesitant to accept this outcome, and it often takes considerable negotiation before a short sale goes through.
Therefore the owner of the home appreciates buyers who are flexible with their move-in date. They often can’t guarantee when the sale will take place, and therefore aren’t willing to sell to someone who insists on moving in as soon as possible. Come into the offer with patience, and it can pay off.
5. Take A Personal Route
Sometimes the seller is looking to unload a home quickly, but that doesn’t mean it isn’t tough. The property may have belonged to a loved one who passed away, or it may be in bad state of repair because they are going through a tough time financially. Even if they have no choice but to sell, emotions are running high. Writing a personal letter to explain your plans for the property can create a positive connection. Maybe the seller raised their family there, and the thought of handing it to another young family will make the transition easier. Maybe their big dog loves the big yard…and maybe yours will do the same.
This is a great strategy for vacancies and fixer-uppers, but it will have no impact on foreclosures. Banks aren’t unfeeling monsters, but their outlook is 100% about making the optimal financial decision. Your plans for the home will not play into their decisions.