Sometimes falling in love with a home comes with heartache. In a seller’s market, you have competition. Many buyers flood the market. This drives the sales price higher. It also causes bidding wars. If you find yourself in one, certain strategies can help you win. Your offer includes more than the price you will pay for the home. It includes things like contingencies, requests, and more. Here we discuss the top ways to make sure you get the home you want.
Watch Your Contingencies in a Seller’s Market
Sellers hate contingencies. They are like escape clauses for the buyer. If you have too many contingencies, the seller may reject your offer. The most common requests include:
- Inspection contingency – This allows you a certain period to have the inspection done. It also gives you time to review the report. If there are issues you don’t like, you can renegotiate. Some buyers cancel the contract. Others ask the seller to fix the issues or give a seller’s credit at the closing.
- Financing contingency – This allows time to secure financing. If you do your homework ahead of time, you can shorten this contingency. At the very least, secure a preapproval. This gives you an idea of what you can afford. It also tells you what program you can have. If you do the preliminary work ahead of time, the lender only has to wait for the appraisal and title work.
- Sale of home contingency – If you have a home you must sell before buying a new home, the sale of home contingency works. But, this makes the contract riskier for sellers. Many sellers avoid this type of contingency. It gives you an out but sticks the seller with their home to sell all over again.
- Appraisal contingency – This protects you if the value of the home doesn’t match the purchase price. You can avoid this by doing your homework. If you work with a real estate professional, he can give you an idea of the value of the home. If you are in the right ballpark, you have a lower risk of the value not being high enough.
Of course, you want contingencies because they protect you. But, too many can make a seller choose someone else. Do your homework and see how you can minimize the contingencies on your offer.
Ask for the Basics on Your Offer
Don’t get greedy with sellers. Sure, you may love the appliances or window treatments, but the seller probably does too. If you ask for too much, they may go with another bid. Choosing between a barebones bid and one that wants everything is easy for sellers. Even if you offer more money, the seller may have an attachment to the things you want to keep.
Develop a Relationship with the Seller
Remember, the seller is selling something they love – their home! They don’t want to sell it to just anyone. They have to feel like you are the right buyer. Take the time to get to know the seller. Try to find things you have in common. Always be courteous by setting up appointments and keeping them. If you can’t make an appointment, let the seller know.
You can also send the seller a thank you note for showing you their home. This shows the seller your good graces and keeps you at the forefront of their mind. The more you get on their good side, the more likely they are to choose your offer. Even if the amount of your bid is lower than others, if you have a good rapport, it could work in your favor.
Make a Large Down Payment
Consider making a larger down payment than the minimum required. The more you put down, the more serious you look about buying a home. You can also increase the amount of your earnest money. Putting earnest money down shows the seller you want the home. The earnest money gets deducted right from the amount of your down payment. Let’s say you plan to put 20% down on a home. If you give the seller 5% of that money, it counts towards the 20% at the closing. The earnest money is money the seller can have if you back out of the contract, though. The more you put down, the less likely you are to back out of the contract.
Bid More Than the Asking Price
This one’s a tough one. Bidding higher usually means you get the home. But, if you bid too high, the value might not match the purchase price. If you have cash to put down on the home to make up the difference, you may be in a better position to do this. Again, ask your real estate professional what he thinks. You obviously don’t want to pay too much for a home, but if there is some wiggle room, you should take it. Sellers don’t always take the highest bid, but if you couple it with a few other tips here, you have a better chance at buying a home.
Add an Escalation Clause
Adding an escalation clause is like an insurance policy on your bid. You offer $X. But, if another bidder bids higher, your bid can increase to $Y. You determine how high you will bid. This shows the seller your true desire to buy the home.
A seller’s market isn’t always a bad thing. Yes, you may have to offer more, but you don’t have to go over your budget. Sellers look at the big picture. They don’t just want money. They want to know their home will be in good hands. They also want to know that you don’t have so many ways to back out of the contract that you will never close on it. Sellers usually have somewhere else to go too. They need to make sure you will make good on your contract so they can sign a contract for themselves.