Avoid These 9 Bidding War Mistakes
A bidding war frequently breaks out when home sellers receive multiple offers from interested parties. In a seller’s market, home receive several purchase offers and a seller’s market is when buyer demand surpasses the supply of residences for sale.
Simply put, the rival purchasers' offer constitutes the "war." The buyers may compete against one another back and forth until the best offer wins over the seller. It can be costly for homebuyers, but it's excellent for the seller, who typically receives a price beyond what they were asking.
There are various ways a buyer can lose the chance of getting their favorite property. Here are nine major purchasing errors and ways to avoid them.
Too Many Contingencies
Homebuyers set basic guidelines for concluding a property purchase through contingencies. Normally, having one or two contingencies might not have much of an impact. Contingencies, however, can either make or break your contract in a bidding war.
If you're too demanding, the home seller might choose a different buyer whose proposal doesn't have a long list of conditions. Therefore, prioritize your contingencies and make your offer as straightforward as possible.
Although many of us aren't in a situation to submit a cash offer, we must get a pre-approval from a lender before entering the bidding process. It's not always all about the price you submit.
Discover any additional requirements from the seller and make every effort to meet them. Your REALTOR® can help guide you through the contingencies in the contract.
Bidding The Pre-Approved Amount
In today's environment, well-priced homes typically receive a flood of offers, and the bidder who is ready for a bidding battle usually prevails. The greatest way to prepare for battle is to ensure that your financial preparation is strong. That includes obtaining a home purchase pre-approval.
Avoid entering the exact amount you had been pre-approved for in your offer. Many buyers arrive with a pre-approval for the same bid price. A buyer with an identical pre-approval may worry the listing agent because they have no room to haggle and may lose their eligibility if interest rates spike. It is frequently a wise move for purchasers in this marketplace to look at properties below their maximum loan amount. They will need some leeway to increase when you must compete against numerous bids, and if they have reached their highest amount, that will not happen.
Bidding Too Low
Without a doubt, you won't acquire the house if you don't make a sufficient offer. When selling their house, many sellers have an optimum price in mind. You will not be eligible for the race if you do not reach or surpass that amount.
Buyers need to be aware that the desired sale amount is frequently near to market value. The homeowners will have gone over pricing data their agent had provided for comparable properties that had already sold in the area. Therefore, sellers typically know the value of their home and can support it with facts. This is not a time for low-ball offers. The one factor that causes purchasers to lose out in competition the most frequently is a sale price that is below this amount.
Your real estate agent will give you the sales prices of similar properties in the same neighborhood as the home you intend to purchase to further assist you in your preparation. These selling prices will provide significant insight into market worth and serve as important guidance as you choose the appropriate offer price.
Best offer first is the secret to winning a bidding battle, though. Bring your best bid straight away because there's a good possibility you won't get another opportunity to enhance it. Sellers frequently choose the overall most alluring firm offer. You'll have a better chance of winning the house if you make your first offer as strong as you can.
Offering a low Earnest Amount
Even if you do everything else perfectly, you risk losing the house if the owner does not find your Earnest Check Offering strong enough.
Earnest Checks are used to show how serious a bidder is about a house. A sizable payment signals a completely committed buyer to a vendor. In addition, if the check is non-refundable to the buyer so that both parties adhere to the conditions of the contract. The seller is thus given plenty of assurance that they can, in fact, see the sale through to closing day.
Consult your real estate agent if you're unsure of how much to give in earnest money. They can advise you on what might be anticipated, and based on interactions with the listing agent, they might even have more information about the seller's demands.
Conditions In the Offer
A condition is nothing more than a hindrance to a seller. Sellers typically dislike conditions because they prevent a contract from being fully completed.
Sellers anticipate the presence of conditions in an offer in a balanced market. Conditions for financing and home inspections are most frequently used. These terms often safeguard the buyer by requiring that the mortgage money and the property's construction and working order be confirmed before the offer can be accepted as firm.
Whether there is a seller's market or not, agents will advise you to put conditions to protect yourself. In addition, you must balance your prospects of winning a bidding battle against the hazards of putting conditions on your offer. Ultimately, it's an individual choice, and everyone has a different level of risk tolerance. Choose wisely.
Consider increasing your chances by shortening the period you must finish your due diligence if you feel more comfortable inserting conditions in the offer but are aware that there will be competition for the house.
Before submitting your offer, discuss the benefits and drawbacks of putting conditions with your real estate agent.
Making An Offer Too Early
Before offer day, some vendors will evaluate offers, while others won't. So, use caution if you are faced with the latter situation.
Presenting an advance offer despite the seller's intention not to accept pre-emptive offers (typically stated in the listing) may backfire on you. On the other hand, sending a seller an early bid lets them know how much you intend to offer for the house.
Even worse, it might set off a system requiring the estate agent to notify every other agency of an impending offer, which would bring about competition just as you were attempting to prevent it.
While making a preemptive offer is not always a bad idea, get advice from your real estate agent beforehand to ensure it's likely to get considered.
Making The Offer Too Late
In most cases, listings will state if a seller has chosen to hold offers until a particular date in the future. This is new to the current market.
There are two reasons why this is crucial. Initially, you are on a very tight deadline if you schedule your first visit to the house on the day that offers are being accepted.
Second, the posting documents will specify the exact time of day by which offers must be received. This is done to maintain buyers' parity and establish timelines for when an owner will evaluate incoming offers.
Discuss anticipated offer dates with your real estate agent before any showings to avoid this situation. This will enable you to leave at least one day between visiting a property and submitting an offer.
Not Reconsidering the Offer
Today is offer day. It's now only a matter of waiting for the decision after submitting a compelling offer with a substantial earnest check. Then something unexpected occurs. Your offer is sent back for revision.
Often a seller will send a few chosen bidders to the drawing board to resolve a tie when two or more offers are extremely comparable, raising their eventual selling price in the process. The seller will request that the buyers return with a better offer and even outline the adjustments that need to be made.
If a seller makes a verbal counter proposal or proposition to a bidder, it should only be taken as an offer to join. If the buyer decides not to proceed, the negotiation will be over, and another person will purchase the home.
This kind of negotiation might be emotionally charged. It could be challenging to embrace what the seller is proposing: it's simply not good enough if you have already entered a bidding battle with your absolute best, strongest offer.
In the end, you'll need to decide how much you intend to spend on the house and whether you can agree to the extra conditions that are being asked for.
Letting Others Influence You
You'll probably want another opinion when purchasing a home. Just be careful not to allow these well-intentioned individuals—who haven't seen as many houses as you have—to influence your offer.
The advisor acts in the buyer's best interest, protects them, and typically trashes the house. Unfortunately, they lack the knowledge necessary to view the other nine homes or comprehend the market. Ask the individual who has been with you for most of the process if you are going to be relying on outside guidance.
Trust your real estate agent and price appropriately. Even if doing so involves giving a little bit more than you first anticipated. It could be counterproductive to lowball the prospective sellers to start a negotiation. A rude lowball offer that isn't supported by math or similar sales data may irritate the seller.
A Final Word
When buyer demand outpaces the supply of available homes for sale, homes on the market frequently attract several purchase offers in the real estate market. As a result, a bidding war typically ensues when homeowners receive numerous offers from interested parties.
Don’t be discouraged—we know this list is a lot. That’s why our team at JS REALTOR® is so committed to serving homebuyers. We want to make the home buying experience one that preserves the excitement but sheds the anxiety. We provide clear guidance and advice to help you find the right home, at the right price, in the right neighborhood. Download our FREE planning kit and connect with us today! Let’s go find your first home!