Throughout 2020-2021 it seemed that almost every home that was listed went into a bidding war. Multiple buyers competing for the same home, often pushing their offers well beyond asking price. What encouraged this? We all know that one of the main contributors were the historically low interest rates. So, now that interest rates are on the rise, are the bidding wars over? Unfortunately (for the buyers), no. The low inventory maintains the demand for homes, especially in hot market towns. If you’re in the market to purchase a home today, there is a good chance you will face a bidding war. So, how do you prepare for that?
First thing is first, have a pre-approval letter in hand, ready to go. Buyers who are pre-approved are a step ahead come time to make an offer. Having a pre-approval letter indicating you are a qualified buyer shows sellers you are serious and not just a waste of their time. It is often a deciding factor that can tip the scale in your direction if there is more than one offer on a home. Contact a mortgage professional to start your pre-approval process early, so you are in the best position right from the start of your home search.
When the seller is presented with multiple offers, they typically ask for all best and finals by a certain date and time. When this is the case, there is rarely any negotiating. So going in with a lowball offer will likely be a waste of your time and your REALTOR®’s time. Talk with your REALTOR® about how you can make sure what you’re offering is competitive and appealing. This often means offering the highest amount you are willing to pay with as little contingencies as possible. If you choose to waive the appraisal contingency, be prepared to come to the closing table with cash in hand in case the home appraises below the purchase price.
Another tactic your REALTOR® may consider is an escalation clause. This states that you are willing to outbid the highest bidder up to a certain amount. Your REALTOR® will help you decide what increments to increase your bid by over the highest bid. For example, let’s say you offer $250,000 with an escalation of $500 over the highest offer, not to exceed $275,000. If the highest offer is $274,000, you would be the winning bidder at $274,500. Of course, you would want the seller to provide proof of the highest offer without it violating the other bidder’s privacy. A lot of times, this is just the highest bidder’s offer with their name and their agent’s name totally blacked out.
Our market is still strong, and buyers are still having to compete for homes. If you find yourself in a multiple offer situation, don’t get discouraged. Talk with your REALTOR® and come up with a good strategy to ensure you have a strong chance of winning. If you do lose out on one, try not to get hung up on it. Keep your search steady and trust that the time will come. I hope everyone has a wonderful Easter. Until next week!
Eve Leombruno, 2023 MBOR President