The trademarks MLS®, Multiple Listing Service® and the associated logos identify professional services rendered by REALTOR® members of CREA to effect the purchase, sale and lease of real estate as part of a cooperative selling system.
Finding your dream home in the housing market has become easier than ever. Many homeowners have listed their properties out for sale in the spring market, making it simpler for you to get a home that perfectly matches your needs, preferences, and budget.
However, remember, when you finally find your dream home in this hot market, you probably won’t be alone. A lot of interested homebuyers may be eyeing the same property as you. As multiple buyers duke it out over the same house, bidding wars can happen, making it harder for you to secure the home.
But don’t let this competition scare you off. With a few smart tactics, you can edge out your competition and win the bidding war on your dream home. Here’s how to prepare for a bidding war and eventually come out on top.
Getting the mortgage pre-approval is a key step in the home-buying process, whether you expect to get coiled up in a bidding war or not. A mortgage pre-approval sends a clear signal to the home seller that you have the financing to buy their home.
You cannot know what price other bidders are offering to the home seller. However, you can assess the following factors with the help of your real estate agent to make your price offer more competitive.
Comparable Sales - Review recent sales data of similar properties in the neighbourhood to make an accurate price estimate of the home you’re interested in.
Days on Market - Check how long the house has been listed in the market for sale. If it has been on the market for many days, the seller may be more willing to negotiate.
Sellers’s Motivation - Ask your real estate to try to gauge the seller’s motivation for selling the property. If a seller needs to sell the property quickly due to a financial or personal issue, the seller may be more willing to accept a lower offer.
Usually, a cash offer is the strongest in the eyes of a home seller even though it’s not the highest. This is because a cash offer removes the possibility of the deal falling through due to the loan approval process. This gives the seller peace of mind and paves the way for a faster closing process.
Even if you cannot pay all cash for the property, try to increase your down payment amount. This way, you will need to borrow less from the lender, making your offer more secure and less risky for the seller.
A contingency is a clause in the purchase agreement that allows a buyer to walk away or renegotiate the deal based on agreed conditions. This could be anything - a home inspection report revealing major problems, title issues, or the property's appraised value coming in lower than the offer price.
You can make your price offer stronger than the other bidders by reducing or dropping all contingencies. Fewer or no contingencies means less chance of the deal falling through, giving the seller peace of mind.
But, remember that contingencies protect you as a buyer and dropping them off may lead to out-of-pocket costs. So, while dropping contingencies, make sure to consult with your real estate agent once. An expert real estate agent understands the local market and can advise you on whether dropping contingencies is a wise move in your specific situation.
Including an escalation clause is another effective strategy to help you win the bidding war. Let’s say you put you in an offer on a $700,000 house. You can add an escalation provision to your offer that indicates you are willing to pay $5,000 above any offer up to $750,000.
So, if another buyer offers $705,000, the escalation clause automatically increases your offer to $710,000. But in case another buyer bids higher than $750,000 your escalation clause won’t apply.
An escalation clause is basically a win for the seller, driving up the final sale price that potentially exceeds the seller's initial asking price. The seller must provide proof of the competitive price offer for the escalation clause to take effect So, rest assured the escalation clause won’t make you overpay.
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The last strategy you can try to win the bidding war on the property is writing a personal letter to the seller. Chances are that the home seller has many special memories in their home and wants the next owner to experience the same. In the letter, you can talk about how you can envision your children playing and frolicking around in the backyard or relaxing on the cosy patio with your loved ones. This will let the seller know how much you love and appreciate their house and can be the perfect owner of their property.
Firstly, you can wait and keep an eye on the pending sales process of the house. It’s quite possible that the buyers may back out before the closing date after reading the home inspection report or they won’t be able to get the financing they need. If the sale process falls through, be ready to act and make an offer that matches or exceeds the last offer.
Or you can learn from your mistakes and move on with the house-hunting process. Analyse why you lost the bidding war, adjust your strategy accordingly, and keep searching for your dream home. Remember that there are many houses available for sale in the market currently and the right one may be just around the corner.