A bidding war isn’t as exciting as it sounds. Right now, you might find yourself in one if you’re trying to buy a house. Today’s housing market is competitive, with mortgage rates reaching record lows and homes in short supply. Here’s how to handle it.
Want to win a bidding war? Use 3 tips to come out on top
Remember, it’s low inventory and low rates driving buyer demand that are making bidding wars so common. Homes in these sellers’ markets can get multiple offers per listing, making the steps you take leading up to placing an offer even more important.
Javier Vivas, Realtor.com’s Director of Economic Research, says:
“COVID-19 has accelerated earlier trends, bringing even more buyers than the market can handle. In many markets, fierce competition, bidding wars, and multiple offer scenarios may be the common theme in the weeks to come.”
When you’re ready to move, you can do three things to make your offer more attractive:
1. Be prepared.
According to a recent Realtor.com survey, only 52 percent of homebuyers took the time to obtain a preapproval letter before they started hunting for a house. This means nearly half of active buyers overlooked a critical part of the purchase process.
Prequalification is essential, but to catch the eye of a seller, take an extra step and get fully approved first. This is what your lender prefers. It allows you to get all your paperwork out of the way. Once you find your perfect home, your loan is one less thing you’ll have to worry about.
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The purpose of getting fully approved for a home loan first is simple. It can add weight to your offer:
- A fully underwritten home loan approval goes beyond prequalification and a standard preapproval letter provided by a lender.
- A fully underwritten home loan tells a seller that your mortgage financing will be approved by your lender and is capable of closing when the offer is accepted.
You’ll have more sway in a multiple offer situation when bringing a fully underwritten loan to the table. This will signify to the seller that the deal is solid and has been through underwriting, in comparison to other buyers who have only prequalified — or haven’t talked to a lender yet.
Another big benefit of getting fully approved before house-hunting is taking care of the details in advance. You’re probably not going to want to deal with paperwork once you’re under contract. With a full home loan approval, you can just start packing and preparing to move. You’re also likely to get your loan funded and get into your new home faster.
2. Make a strong offer.
In today’s competitive market, it’s not uncommon for sellers to pick a specific date to review all their offers. If this happens, you might not have the chance to negotiate.
As the National Association of REALTORS® (NAR) explains:
“Not only are properties selling quickly, but they are also getting more offers. On average, REALTORS® reported nearly three offers per sold property in July 2020.”
If you’re selling your home in today’s market, this is a good problem to have. You may receive multiple offers and could sell above asking price. But you might encounter the same multi-offer roadblock when you turn around to buy. The only way to get into the home you have your eye on and stay within your price range is to stand out from the competition.
It’s important to ensure that the house offer you present is the most attractive one a seller receives. Working with a skilled realtor and having a full loan approval can help set your offer apart.
When making a bid to a seller, even in a tight market, don’t aim too low or too high. Start at asking price or the price advised by your realtor. A seller with multiple bids on a house might surprise you by being more interested in your offer backed by a fully approved mortgage because it shows you’re ready and able to purchase.
Buying in cash can also be a top strategy in a hot market, but for those who can’t afford it, getting a full loan approval comes in close second. If cash isn’t available, a seller may be looking for a house offer that’s as close to cash and as non-contingent, or uncomplicated, as possible.
Going all the way with a fully underwritten home loan that’s been through underwriting with no conditions can effectively look as good as cash among multiple offers.
3. Move quickly.
Existing homes are selling like hotcakes. Right now, there’s truly no time to waste.
Home sale speed has been accelerating, the NAR confirms:
“Properties typically remained on the market for 22 days in July, seasonally down from 24 days in June and from 29 days in July 2019. Sixty-eight percent of homes sold in July 2020 were on the market for less than a month.”
The NAR also notes:
“Total existing-home sales… jumped 24.7 percent from June to a seasonally adjusted annual rate of 5.86 million in July. The previous record monthly increase in sales was 20.7 percent in June of this year. Sales as a whole rose year-over-year, up 8.7 percent from a year ago (5.39 million in July 2019).”
It’s clear the housing market is picking up steam. For two months in a row this summer, homes sold rapidly. As a homebuyer, you may not have time to shop around or think it over. The odds are that another buyer loves the home you love too. Taking your time right now means your dream home may no longer be available.
Once your offer is accepted, get ready to move fast
The average mortgage closing time currently sits around 47 days.* Circumstances can vary, but doing your homework first by getting fully approved could shave your closing time down to its bare minimum. Depending on the lender you choose, you could close on a house in under two weeks if there aren’t any hold-ups. Prequalify now and get fully approved for your mortgage.
*“Origination Insight Report.” Ellie Mae, July 2020.
For educational purposes only. Please contact a qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.