Welcome to spring homebuying season! With warmer weather just around the corner, a strong wave of house hunters will be coming out of hibernation to search for their dream homes.
If you’re a potential homebuyer, get ready to battle: Spring’s pent-up demand can often lead to bidding wars, where multiple buyers have to duke it out over a house. But with a few smart tactics, you can edge out your competition. Here’s how to win a bidding war.
TEAM UP WITH THE RIGHT REAL ESTATE AGENT
In the spring, homes get snatched up quickly, often because real estate agents hear of new listings before they hit the market, which enables them to prepare winning offers in advance. This means you need to work with an agent who’s plugged in, and finding someone who specializes in your prospective neighborhood is key. If you have a savvy agent, you may be able to avoid a bidding war altogether.
FIND OUT THE SELLER’S NEEDS
While making an offer that’s above a home’s listing price can make your bid more attractive, there are other factors besides money that can go into a seller’s decision.
Let’s say a couple is in a rush to sell because they’ve already purchased their next home. In this case, submitting an offer with a short closing period — say, 21 days instead of 30 days (the standard in many markets) — could help you cement the deal. Find out what a home seller’s motivations are and tailor your offer accordingly. A simple way to do this is to have your agent contact the listing agent and gather intel.
If a seller is emotionally attached to their home, you may be able to persuade them to accept your offer out of all the others by tugging on their heartstrings.
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Homebuyers can appeal to a seller’s soft side in a couple ways. One approach is to write a heartfelt note explaining why you want to buy their house. To craft a compelling letter, find out what you and the seller have in common. For example, if the seller raised a family in the house, mentioning that you have young children, or plan to start a family soon can help tip the scale in your favor. Another strategy: Provide a small gift with your offer, such as homemade cookies or a toy for the seller’s toddler. Small gestures can go a long way.
DON’T MAKE YOUR OFFER CONTINGENT ON SELLING YOUR HOME
Most real estate offers include contingencies, which are provisions that must be met before the sale can go through. If the contingencies aren’t fulfilled, the buyer can walk away from the deal, which is why submitting an offer with fewer provisions can help your bid stand out.
One approach: Don’t require that your current home must sell before you close on the new property. Waiving this contingency will strengthen your offer — and if you’re going to be selling your home in a hot market, there’s less of a risk of not closing on your current home. This move can also help you compete against first-time homebuyers who don’t have such constraints.
USE AN ESCALATION CLAUSE
One less common way buyers can win a heated bidding war is with an escalation clause. This is an addendum to a sales contract, where the buyer states that they are willing to automatically raise their offer by a predetermined increment and up to a certain amount if another buyer submits a higher offer.
Let’s say you make an offer of $500,000, which includes an escalation clause that increases your bid by $5,000 increments, up to $525,000. If the seller receives an offer of $510,000 from another buyer, your offer would increase to $515,000 and the seller can choose to accept your offer right then and there.
An escalation clause can be appealing to a home seller because it eliminates the hassle of having to negotiate. The caveat? Some real estate experts don’t recommend buyers use it because it reveals their hand. However, buyers are allowed to specify the type of documentation that the seller must provide before the escalation clause kicks in, such as a copy of the highest offer, which adds an additional layer of protection.