In today's real estate market, with tight inventory and multiple offers over asking price being the norm, what strategies work best when you're faced with a bidding war over your dream home?
Surprisingly, the best practices when it comes to winning a bidding war are:
- Make your best offer
- Shorten the inspection contingency period
- Consider limiting, shortening (or even waiving) appraisal contingencies - If an appraisal comes in significantly higher than your offer, limiting your contingency would cap the amount of cash you would have to raise, but if you waive the contingency, you could be on the hook for the difference in cash.
- Consider waiving or shortening loan contingencies — in affect, you agree to forfeit your deposit if you're unable to get approved for a mortgage.
- Writing a cover letter actually can boost your chances significantly!
- Put down more earnest money
- All-cash offers - you can nearly double your chances of getting the winning bid
These techniques are even more effective in the higher end of the market.
In a perfect world, emotions aside, sellers are usually advised to choose the highest bid, but offers that minimize risk, such as those that don't require getting approved for a mortgage or those that are aren't linked to an appraisal value, can be more attractive than a higher dollar offer with contingencies. Hence, the value of an all-cash offer!
Cover letters can be extremely effective in several ways. You can tug on their emotions and ego. It's also helpful to communicate (for example) how you will raise your family in their home, how you will commit to maintaining the home in a similar manner as the seller, or some other hardship you've overcome such as how much you want to live in that community and have you've been unable to find a suitable home up till now.
Most importantly, a personal letter conveys that you're serious about buying their home and it might also infer that you will follow through, even if problems arise in the escrow period. You're not just a buyer, you're a real person who's putting skin in the game.
These are proven techniques to win a bidding war, but you should consult with your realtor before incorporating any of the above.
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