If you're hoping to buy a property in a competitive market, then you probably know that a bidding war with another hopeful buyer may be in the cards. But you don't have to be a real estate tycoon to know how to negotiate; the key to surviving a bidding war is to be prepared. Here's what you need to know before you head into battle:
Cash is King
Cash is a universal language that everyone understands. You likely aren't reading articles like this one if you're able to buy a home outright, but it bears saying anyway: If there's any possibility that you can buy your home in cash—or with more cash—by all means, do it. Not only does that alleviate the lifelong debt that comes from a mortgage, but the seller will hear "cha-ching" knowing that the potential buyer won't be denied financing.
Keep your emotions in check
Letting your feelings get the best of you during a highly stressful time generally doesn't end up well. "It can be very frustrating to become attached to the prospect of owning a specific property, only to lose out in a bidding war," says Andrew Sobel, Vice President of Sobel Real Estate. But that doesn't mean you can't have all your ducks in order as you go into negotiations. "Understand that the process may take some time and you'll need to be persistent and patient," says Sobel. "Be sure that you've researched all your financing options in advance, and know how flexible your terms are."
You may end up spending $5K to $10K more
Depending on how badly you want a specific property, you have to be ready to up the ante. "Is it the house that you want? Is it the neighborhood or school district you want? Five to ten thousand dollars sounds like a lot of money, and for some buyers it is, but you need to put it in perspective of a 30-year mortgage. You'll find in most cases, it's only a few extra dollars a month," says Ed Deveau of Century 21 Mario Real Estate. "Just remember: if it's your dream home, you never know if it will come up for sale again."
Knowing your lender is vital
Think of a bidding war like a major college exam. You wouldn't want to walk in without studying, right? That's why you need to do your homework on your lender, by browsing online reviews or asking people in the industry. "People who have had trouble will have no qualms with voicing their experiences," says Tom Rhodes, CEO of Sente Mortgage. "A lesser-known tactic in choosing a reputable lender is to check with local title companies and find out who they trust. This makes for a trustworthy recommendation, as they are immersed in the industry and have preferred partners with whom they work for many years."
A Personal Touch Goes a Long Way
While sellers certainly want the most money they can get, having a personal connection to you as a potential buyer can tip the scales in your favor. Sarah Maguire of Broadway Village Real Estate has her buyers write the seller a personal letter that shares some details about themselves. "I had a client win a bidding war recently because it turns out they both had gone to the same college and knew a lot of the same people," she says.
Set your Limits
Before you even enter the offer competition, determine what the highest possible price is that you'll spend on your home. "The back-and-forth before an offer is accepted may play with your emotions and stretch beyond your comfort zone," says Thais Collins, a realtor and buyer agent with Suzanne and Company Keller Williams Realty. "Having that number in mind beforehand will remind you of your goals, and give you peace of mind if you decide to walk away."
Creativity is Key
If you want to buy a property badly enough, a little extra effort can go a long way. This means making your offer as attractive as possible to the seller. "Consider reducing the amount of contingencies in your offer," says Maguire. "They'll appreciate this immensely." This includes things like: inspection contingency, mortgage contingency, home sale contingency (meaning the buyer has to sell a current residence before being able to buy the one they are offering on), and pest inspection contingency. (You could even waive your home inspection—though that's certainly not a rookie move.) The fewer things the seller has to worry about, the better.