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7 Ways to Win A Bidding War When Buying a Home

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Today, the Florida real estate market continues to be highly competitive, especially in areas that have an abundance of potential buyers with a limited number of homes for sale. It wouldn’t be uncommon to find yourself in the middle of a bidding war against (cash buyers, i-buyers, professional investors with a huge war-chest of cash) multiple offers on the home you want. Trying to win a bidding war can be stressful and expensive, and can force you to go over budget if you aren't prepared. Hire an experienced agent and follow these few simple tips to help you win the bidding war without worrying about breaking the bank.

Here are SEVEN effective ways to help you be the winning buyer:

#1 Increase Your Earnest Money Deposit

If you want your offer to stand out in the crowd, increase the amount of your Earnest Money Deposit (EMD) significantly above the minimum acceptable for your market. If you are utilizing a low down payment loan, a great way to show the seller how serious (and qualified) you are is to pledge 50-100% of the down payment amount as the EMD. The seller doesn't have to wonder if you have the necessary cash to close and they will get the message loud and clear that you will close on this home because you wouldn't risk losing a large Earnest Money Deposit. Money talks; it says you are a strong buyer.

#2 Provide a Strong Mortgage Pre-Approval Letter

Another way to improve your chances of being successful is to obtain a pre-approval letter from a trusted mortgage lender. A mortgage pre-approval is simply a letter from your lender stating that you have the necessary amount of income, a high enough credit score, proof of assets, and other credentials to be approved for a mortgage loan. In today's market, sellers won't even look at your offer unless it is accompanied by a strong pre-approval letter. Go one step further and get fully underwritten (fully approved) as a buyer, so that the only items needed for final loan approval are related to the specific property and not your ability to qualify for the mortgage. Many lenders do not offer this option. Work with an experienced agent who can recommend an outstanding lender. Sellers would prefer to have a cash buyer, but this strategy is the next best thing if you need to get a mortgage for your purchase. **BONUS POINTS if your lender will call the Listing Agent/Seller and introduce you as a highly qualified buyer. Give your lender permission to share general information about you such as "high" credit score; income, savings, and employment have been verified; fully underwritten as a borrower (if this is true); the percentage of on-time closings this lender completes. All these points cement YOU as a low risk, highly desirable (even though you aren't paying cash) buyer!**

#3 Minimize Contingencies

Limiting the number of contingencies in your offer is another excellent way to win against competing buyers. Your clean, simple offer is much more likely to gain consideration compared to another buyer with a long list of contingencies. Avoid making additional demands such as requesting the seller to repair specific items, pay closing costs, or purchase a home warranty. Asking a seller to take on the risk that your current property will sell or close on time will usually get your offer quickly refused. Why should the seller have to worry about someone else's transaction in addition to their own? In today's market - they don't. Limiting demands/contingencies can play a crucial role in gaining an advantage over other buyers. NOTE: I do not recommend waiving your right to inspect the property.

#4 Increase Your Down Payment

One of the best ways to improve the likelihood of winning a bidding war is to increase the down payment. A higher down payment reduces the amount of money needed from a lender and gives you an advantage over other buyers that do not have the extra money for a larger down payment. Ultimately, a higher down payment will save you money in the long-term and help you stand out from the crowd of other potential buyers with similar offers. If you are able, converting to a cash offer is one of the strongest positions for a buyer. This option removes the entire financing contingency from the equation and gives the seller a great deal of confidence that you will close the transaction on time. You will likely need to provide 'Proof of Funds' with your initial offer, so be prepared with recent account statements in your name showing at least the purchase price of the home, or a bank letter stating you have cash deposits in excess of the purchase price.

#5 Consider the Appraisal Gap

It is not uncommon for offers to be above the asking price these days. This situation has the potential to result in an appraised value that is below the agreed upon sale price. Your agent should help you prepare your response to this issue before you even write the offer to purchase. You may want to guarantee to cover any appraisal gap (within certain limits) in your initial offer. If you are paying cash, you may want to waive the appraisal contingency altogether. You may have no other option than to walk-away from the transaction. An experienced agent will help you structure an offer than protects you from losing your earnest money deposit as long as you act within the defined time frames of the transaction.

#6 Remain Flexible on the Closing/Occupancy Date

Sometimes the difference between a winning and a losing offer is to simply remain flexible on the closing date. The home seller may need additional time to move, and staying flexible is an excellent way to accommodate their needs. Always being upfront about your willingness to be adaptable on the closing date may be the key difference in separating yourself from the rest of the bidders. A good buyer's agent will have a conversation with the seller's agent about the issues that are important to the seller and use those details to craft the most appealing offer.

#7 Don't Miss Your Shot

Be the buyer who understands that you may only get one shot to be chosen as the buyer for the home you want. It is a critical error to think that you can submit a low offer in this market because you believe the seller will make a counter-offer. The seller does not have to inform you of other existing/competing offers. The seller does not have to counter or respond to your offer in any way. The worst kind of buyer's remorse is, "I would have paid that much so why did the other buyer win?" If you aren't an experienced home buyer, then it is critical that you hire an agent you trust that has been through this kind of market cycle at least once in their career. They should know about escalation clauses, kick-out clauses and more ways to position their buyers for success. Let their expertise guide you.

Buying a house is usually a lengthy process that requires a lot of energy and effort, especially if you are a first time home buyer. Competing against other buyers in a bidding war is a challenge that can quickly get expensive. However, an experienced REALTOR can guide you throughout each stage of the process to help you follow these tips and others, to be the chosen buyer for the home you love. 

*Winners appearing on this page do not pay a fee to be considered or to win the Five Star Award. Professionals with a digital profile have paid a promotional fee.