The San Diego real estate market for first time home buyers are facing incredible competition especially in the price range under $500,000. Multiple offers are a given fact. You must be prepared to face this reality and be prepared to have a strategy to come out ahead in this unfortunate bidding war environment. Here are few steps that will mold your strategy into a winning one.
1. Get a preapproval letter from your lender
Getting pre-qualified, which merely confirms your income and how much a bank might be willing to lend you based on your credit profile, isn’t the same as having preapproval for a specific purchase offer.
You can up your chances of beating out other buyers by including a letter from your bank stating that your lender has underwritten your application and it’s simply pending appraisal.
This includes submitting all of your financing documentation to your lender before looking at homes and certainly before writing any offers. That way you can pounce quickly when you find the home you want, and avoid the stress of submitting preapproval paperwork and writing an offer at the same time.
2. Use an escalation clause
If you’re in a multiple-bid situation, you can strengthen your offer by using what’s called an escalation clause. It’s essentially a contract addendum that states you’re willing to increase your offer incrementally up to a certain limit if other offers come in that match or top your initial bid.
For example, say the seller’s asking price is $200,000. Your real estate agent would write your offer to state: “My initial bid is $200,000 with an escalation of $2,000 over competing offers up to $210,000,” or something to that effect. If another bidder offered more than $210,000, however, you’d be out of the running.
An escalation clause is a smart strategy that shows strong interest, but it’s important to stay within your budget and be willing to walk away if bidding goes beyond your limit.
3. Limit the contingencies
Sellers have the upper hand in a multiple-bid situation, and they want offers that are clean and concise. If you know other bids are coming in and you really want a home, avoid putting in too many contingencies or making too many demands.
“Don’t include things like asking the seller to purchase a home warranty or requesting that the seller leaves or repairs certain items. Having too many of these items in your contract will make it likely that a seller tells you ‘no’ over another offer.
4. Be flexible on the closing
Let’s say someone outbids you by a few thousand dollars, but you’re willing to give the seller more time to move out. That flexibility can make you the front-runner in a multiple-bid scenario. I have seen buyers snag their dream homes even when outbid because they either let the sellers rent back the home for a period or pushed back the closing date.
Extending that courtesy can make your offer more attractive to a seller who might otherwise have to spend more on moving expenses or be crunched for time to find another home.
On the other hand, if a home is already vacant, sometimes you can win the seller over by offering to close in a shorter time. Buyers who offer to close quickly — sometimes within 21 days — can edge out buyers who haven’t been preapproved or have to sell their current home to buy a new one.
Sellers are concerned about liability, theft, holding costs and hazards with a vacant home. Offer to close at the seller’s convenience with occupied homes. Be flexible if the seller needs to find a new home; provide them that time.
5. Write a ‘love letter’ to the seller
With so much fierce competition out there, sometimes appealing to the heart can make your offer stand out. I suggest that buyers write a heartfelt letter to sellers explaining why they want the house and even have them add a couple of photos of them and their kids or pets.
6. Don’t count yourself out after a bidding war
If you lose a bidding war and the seller chooses another bid, stay in touch if you’re still interested in the house. If a buyer offered way over the asking price, the deal could fall apart on appraisal or the buyer might be bidding on multiple properties to see which one sticks. Staying in touch with the listing agent throughout their escrow period will keep you at the top of their list if something were to go wrong.
Conclusion – Plan ahead to get the edge
The homebuying process can feel cutthroat at times, but you’ll be in a better position to win the house you want if you write a strong, competitive offer that follows these strategies.
You may well lose one or two bidding wars before you win one; it’s almost a rite of passage for homebuyers. Good luck on your home search, and may the odds be ever in your favor!
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