Contingencies are requirements within the As IS Residential Contract for Sale and Purchase that must be met for the deal to go through. In your offer, you may have included a financing contingency, or an appraisal contingency, or a home inspection. And of course, you’ll need to submit a deposit–an amount up to 5%-10% of the purchase price, which is held in trust until close. Once the contingencies have been met, the agreement is firm and now it’s just a matter of waiting for your closing date. And of course, packing!
Close the Deal
You’re almost a homeowner! Closing is the point at which the ownership and possession of the property is transferred from the seller to you. It takes place after all legal and financial obligations have been met. Closing the purchase will be a team effort: in addition to yourself, your lawyer and your lender will all be involved in helping close the deal. Click here to find out how much your Closing Costs will be.
How to win a bidding war
If you find yourself in a bidding war, there are a number of strategies that can help you come out on top:
Recognize that the Seller has control.
If you want the house, accept this fact and plan to make yourself as flexible to their demands as possible. If you want to win a bidding war, you must accept that you aren’t generally in a position of power.
Forget about the Asking Price.
For the most part, the highest price usually wins the bidding war. Reality check: the asking price on the MLS listing is almost irrelevant. How much a property is worth doesn’t really depend on how much the Seller wants to get for it, or how much money the Seller has put into the house, or how much the REALTOR® thinks they can get for it; the only thing that matters is how much someone is willing to pay for it. Remember, the bank will not lend more than the value of the appraisal.
Don’t get caught up in winning a bidding war at all costs.
Have a budget and stick to it. The last thing you want to do is over-pay for a property – your lender (and let’s face-it, the co-owner of your house) will want to ensure that you’ve paid a fair price for the property. Lenders require property appraisals before they give a mortgage – meaning that they want to approve you for X amount of money for a particular address – especially if you’ve paid more than the asking price. If your life circumstances change and you suddenly need to sell in the short-term, having paid fair market value will go a long way to reducing any potential losses.
Think of the monthly $$ involved rather than the Big Number.
It’s easier to digest $23 a month than $5,000. As you work through your offer price options, make sure to do the math, factoring in how a higher price will affect you on a month-to-month basis. We’ve lost bidding wars by a mere $500 on a $350,000 property. Ouch.
You may only get one chance
Generally there are no second chances in a bidding war – there aren’t the usual back and forth negotiations. Your first offer is often your last, so make it a good one. Go in with your strongest offer.
Don’t get emotionally attached
I know, easier said than done, but the reality of every bidding war is that there is only one winner. And yes, outcomes are hard to predict and the only way you are ‘guaranteed’ to win an offer is to over-pay: offer the Seller of a $500,000 house $1,000,000 and you’ll be guaranteed to win.
Reduce the Seller’s risks in picking your offer.
During contingencies (e.g. financing or home inspection). When a Seller accepts a conditional offer, they take on the risk that a Buyer will not get financing, or will decide that the leaky basement discovered during the inspection is too much to deal with. But by the time that happens, the Seller has lost all the other potential Buyers, and has to start the sale process again. Put yourself in their shoes–would you take that risk? The best way to reduce the Seller’s risk is to enter a bidding war with as few as possible or no contingencies. More on that next.
Mitigate your risks by taking care of business before the offer.
If you were planning on having a financing condition in your offer, talk to your bank and get their OK before you make the offer. If you were planning on doing a home inspection, then suck up the $500 and have it done before the offer – that way you can meet the Seller’s desires to have a firm or no-condition offer and still protect your interests
Be ready with a deposit.
Real estate deals become legally binding when a deposit check is provided in trust to the Listing brokerage– an amount usually at least 5%-10% of the price of the property (which then forms part of your down payment). Having a certified check ready on the day of offer is yet another way to reduce the Seller’s risks and increase your chances of winning the house.
From choosing your timing to the actual offer presentation, there are lots of ways to play the bidding war game. Each situation is different and an experienced and strategic REALTOR® can make the difference between getting the house of your dreams and crying in your beer.
Bidding wars are a stressful reality of the real estate market, but with the right knowledge and partners, you can come out on top. Knowing the strategies that can help you win a bidding war will go a long way to getting you the house you want.