How to Bid for a House
Low inventories of homes for sale mean high prices and many are up for bids. One home flipper, who spent over $100K to repair before being put on the market was hoping to sell for $400K. That was being realistic. His profit would be made but barely. When the home when on the market, a bidding war began that eventually ended with the home selling for $520K! The person who had bought the dump for $250K was very happy.
Hot markets are in Arlington, VA., San Francsico, CA., Boston, Mass., San Diego, CA., Las Vegas, NV., Sacramento, CA., Santa Rosa, CA., Phoenix, AZ. There are others.
So, what does the buyer need to do when finding themselves in a bidding war?
- Do your research about the area where the house is located. Using websites like Zillow, Trulia, or Realtor, will provide details of values of other homes near the one you want. You may be able to find out what percentage of winning offers were above the asking price. In SF, 92% of the winning offers were!
- When making your bid, make the offer the highest amount you are willing to buy for. You are wasting time in lowballing. Since you cannot know just how high the offers will go, bid the highest and wait.
- Do not get into a bidding war, select a price that you will not surpass and stay with it. Think about how much you are willing to pay for the mortgage every month, which should not be more than a third of your monthly income. If paying cash, is the home a smart investment and worth committing all your funds to it? You need to be patient. Some home buyers have been looking for months and making bids but stick to their limits.
- Ask the selling agent for the conditions of purchase and be flexible in those offer terms. If the seller wants to close fast, remove any hurdles that could slow it down such as, home inspection. Have any paperwork in order and ready to go as a buyer.
- If you find a house you want, be quick to make an offer that will be your highest that you are willing to go.
- If you need a mortgage, be prequalified and ready to go. Do this with two lenders and ask the selling agent if they have a lender they prefer to work with.
- If the home you won in the bid is actually worth less than what you won it at, you need to decide whether you will make up the difference in price or walk away. So, decide this before you start bidding and how you would handle the situation.
- Even if you are not the winning bidder, the deal could collapse, so make sure your agent conveys this interest to the selling agent as a backup position.
- If you find the dream house, contact the sellers. Make your interest and appeal to the seller. This will maybe help make you standout among other buyers on paper. Make your personal appeal. In your letter, consider waiving your right to inspection, note you are preapproved with lenders and provide details of your family and why you love the home and area. You never know what the sellers may think. One bidder did this and during the bidding, they bidded $50K over the asking price. There were 25 bidders in this war. The sellers indicated it was the letter that made the difference as the bidding became close.