A tight housing market can mean that hopeful homeowners must compete against each other (and rising property prices) to land their dream homes. Whether you're preparing to bid for the first time or you've been turned down after yet another offer, try these tips to stay competitive and even get ahead in a bidding war.
Have your pre-approval letter in hand
Don't wait until after you've made an offer to get pre-approved for a mortgage. By then, you'll likely already have fallen behind another bidder. When you have a pre-approval letter at the time of the offer, you show sellers that you're serious about buying — and that a lender is serious about financing your home. With Ally Home, you can get pre-approved online in just minutes. Plus, you can create a custom pre-approval letter for every house you bid on.
When you're getting into a hot market, you may want to hire a real estate agent, especially one who's familiar with the local housing market and has experience helping others craft successful offers. Lean on them to determine a fair and competitive offer based on factors like the current competition in your area and the condition of the home. Your agent can also help you find comps (how much similar homes in the area are selling for). And of course, don't be afraid to ask them for tips on wooing or negotiating with a seller.
Prepare your asking price
Before you dive into the housing market, have a firm understanding of your budget. If several potential buyers are eyeing the same house as you, you may need to go over the asking price. You should be mentally (and financially) prepared to pay more than a property's asking price — which means you probably shouldn't bid on houses that are already on the high end of your home budget.
When you add an escalation clause to your offer, you can easily increase how much you're willing to pay, up to a certain point in the event you face competition with other bidders. For instance, you might bid $250,000 on a home, but agree to increase your offer to $1,000 higher than a competing offer up to $275,000. Escalation clauses help you not have to worry about constantly being outbid while also letting you determine your upper limit from the beginning.
Limit or drop your contingencies
When making an offer, contingencies are specific conditions that must be met for your contract to be binding. For example, you might include a contingency that says a home appraisal needs to equal the sale price for you to go through with the purchase. Or you might have a contingency that your current home has to sell within a certain number of days, or you can walk away from the sale. With no contingencies in your offer, the more attractive you'll be to the seller since they won't have to worry about the sale falling through.
Be flexible about the closing date
If you're able to, consider putting the closing date in the seller's court. This flexibility can make your offer far more attractive than those with hard deadlines because the seller will feel less pressure to move out right away and will have more time to make any necessary repairs and get the home move-in ready.
Keep your chin up
There's no denying it: It's a bummer to have an offer denied on a house you love, especially when homes are flying off the market in a matter of days. But to keep your cool in a hot market, plan ahead to show sellers you're ready to buy, you care about the home and you're prepared to take on competing bids. That way, you'll set up your offers for success and hold your own against the competition.