Buying a home: How to win a bidding war
Realtor Catherine Schramm replaces a listing line number atop a sign after changing the status to pending in front of a home in Florence, Ky. Credit: AP, 2008
The bidding war is back. While not every local real estate market is experiencing bidding wars, some homebuyers find themselves competing for houses because there aren't many for sale in their neighborhood. For example, in Phoenix, it would take just 2.3 months to sell all the homes currently on the market, says Susan Paul, owner of Better Homes and Gardens Real Estate Move Time Realty in Scottsdale, Ariz. The result? Many homes have 10 to 15 offers the day they go on the market, she says.
To compete in a bidding war, buyers need to prepare financially for the home purchase. They have to familiarize themselves with property values in their target neighborhoods. And they must know what they want.
While offering the most money might seem the best way to win a bidding war, sellers don't always choose the highest offer. Instead, sellers often prefer offers that are most likely to go through and that meet their conditions.
"Too many buyers talk to a lender and start looking at homes at the same time," says Eldad Moraru, a Realtor with Long & Foster Real Estate Inc. in Bethesda, Md. "You need to have everything (financial) done before you begin to look." Then you are more likely to win a bidding war.
He suggests selecting a lender and loan product, completing everything the lender requires and having a preapproval letter in hand -- all before submitting an offer.
"You need to make sure your lender is ready to issue an approval letter specific to the property at the drop of a dime," Moraru says.
Paul recommends keeping a file folder constantly updated with your most recent pay stubs, all pages (even blank pages) of recent bank statements and any other documentation the lender may need to make a quick loan approval. Then you are ready to make an offer.
A strong preapproval is essential, especially if you are competing against buyers with a cash offer, says Alan T. Aoyama, vice president of Century 21 M&M Associates in Cupertino, Calif. Any hint that you might have trouble qualifying for financing could eliminate you from competition.
"An all-cash buyer can even waive the appraisal," Aoyama says. "If you're a noncash buyer, you need to have a copy of your proof of funds with your offer along with a strong preapproval. At a minimum, you should offer a down payment of 20 percent if you know you'll be competing against other buyers. You need to show you have the funds to close and the ability to make up the difference if the appraisal comes in too low."
To compete against other buyers in a potential bidding war, make sure you see a potential home the day it goes on the market, so you can move quickly, Paul says.
Moraru says while price is important, sellers want to know the buyer can finance the property and meet any other conditions. If you don't know the date when the sellers want to settle, you can write "will settle on seller's schedule" into the offer.
Aoyama suggests offering 30 days of free rent if the sellers want to stay in their home after settlement.
Most Realtors don't recommend buying a home without an inspection, but making your offer contingent on an inspection can weaken your position if other buyers are waiving an inspection contingency.
"If you're serious about a particular house, you can have a home inspection before you make an offer, and then make a noncontingent offer if you're satisfied with the report," Moraru says. "You'll need to move fast, though, and have a home inspector ready almost the day the home goes on the market."
Paul says you can bring a home inspector along when you first look at the home and say the inspector is a friend, just to get an inspector's feel for the condition of the home without an in-depth checkup.
"If the inspector says the house looks OK, you can feel better about waiving the home inspection contingency," Paul says.
The 30-year fixed-rate mortgage rose 9 basis points to 3.67 percent for the week of Jan. 10, 2013. A basis point is one-hundredth of 1 percentage point.
The 15-year fixed-rate mortgage rose 4 basis points to 2.92 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, rose 2 basis points to 4.1 percent.
The 5/1 adjustable-rate mortgage rose 1 basis point to 2.77 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.
Contact Donna Fuscaldo at editors@bankrate.com.
