The housing market is a very active one, and, for several reasons. First and foremost is the recovery, fueled by affordable, yet rising prices, and loosened lending requirements. Add to this the new Fair Isaac credit score modeling, which lessens the impact of medical bills, and a new credit scoring model for the some fifty million consumers across the country that don’t have a traditional credit score, it’s little wonder why home sales are steadily rising. Other factors contributing to the escalating housing market are less distressed properties as a percentage of active listings and new home construction is also strong, which has an impact on the sales of existing homes.
Buyers are out in a big way, and, the housing market is heating up in many places across the nation. Also in the dynamic are resort properties, as buyers are coming to the table more and more with cash, or, the right financing in-place and ready to go. That means you might find the perfect home, but, have to contend with other interested and eager buyers, which can lead to a bidding war. While these are generally good for sellers, they can have an unwanted impact on buyers.
What can Happen in a Bidding War
Okay, so you probably understand that if you get involved in a bidding war, the price of the home, or the asking or listing price, is likely to either increase or be firm. Sellers that purposely setup bidding wars do so precisely to get as much out of their properties. It’s how the various buyers react that ultimately determines who will win and purchase those homes.
“The housing market is still in the early spring of recovery, but if you’re a buyer, you know it’s already hot out there. Very tight supply in markets across the nation is leading to bidding wars. Half the homes sold by real estate brokerage Redfin in the past three months had multiple offers. One-third of all U.S. properties sold in March went at or above asking price, according to the National Association of Realtors. That’s hot.” —CNBC.com
Of course, you don’t want to pay more than the asking price, because in most instances, it’s set at or near market value. For motivated sellers (read: desperate), the decision making can be mixed too much with emotion and can backfire. However, you as the buyer might enter a bidding war because you really, really, love the home. This creates a scenario that can quickly spin out of control and you still want to land a good deal by making a smart, strategic buy.
Ways to Win a Bidding War
If you find yourself having to fight to get a home, you’re not alone, and, you’re not without options. The good news is that there are tactics you can use to your advantage to get the home and not pay too much. Here are some ways to win a bidding war:
- Consider the overall situation. Search for like homes in the area and compare them. You might find that entering into a bidding war isn’t necessary and there are other properties that have comparable features, along with other similarities.
- Know the local market. The local market has a huge impact on setting the listing price. Check out homes that are similar that have sold in recent months. You might find an upward price trend and that will help you make a more informed decision.
- Understand the impact of location. In the world of real estate location is of the utmost importance, and, if this is the most pricey home in the neighborhood, it might not be a good investment. Think about the long term and consider the future carefully.
- Avoid contingencies. When you set contingencies on the seller, you’re obviously asking for something, perhaps several things. In a bidding war, it’s not unlikely other interested buyers are asking for the same contingencies, by removing these, you’ll become the seller’s best choice.
- Be flexible with the closing date. Sellers are generally under pressure to do just that, sell their homes. When you are flexible about the closing date, you’re going to stand out from your competition. Be realistic about the timeline because once the offer is accepted, it will be difficult to change the closing date.
While these might get you to prevail in a bidding war, you certainly don’t want to spend more than the home is worth or what the market dictates. Set your “walk away” number and stick to it. Don’t be unwilling to walk away and to let the seller know your limit through your buyer’s agent.