The process of buying a house for investment can be intimidating, especially for new real estate investors. It becomes even tougher when you are competing against multiple offers on a house. The current housing market is debatably one of the most competitive in history. Low supply of real estate listings and high demand make for a seller’s market.
Consequently, many buyers in hot real estate markets are finding themselves in a real estate bidding war, with many offers pushing property prices higher and higher. Even though it is not ideal, it is also not the end of the world. With the right strategies, winning a real estate bidding war is very much achievable.
Do you want to know how to win a bidding war on a house? Well, here are some important strategies that will give you an advantage and help you win.
1. Select the right real estate agent
One critical move you need to make before writing any offer is hiring an experienced real estate agent. A real estate agent’s job is to research the real estate comps in the neighborhood and advise you on the worth of the house. This can help keep you from paying way too much during the heated real estate bidding war.
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A good agent is also a good negotiator. They can offer you negotiating tips and guide you through tough negotiations. Find a real estate agent who has a solid track record in multiple-offer situations. They should also have strong relationships with other realtors to help them get inside information critical to making the deal. The right agent might have more information about the seller and his or her hot buttons. The more facts you have, the more equipped you will be for the real estate bidding war.
In general, a real estate agent can make educated predictions about the future of a real estate investment and help you get what you want depending on your budget. Having a professional who has your best interest in mind and good knowledge of your local market can improve your chances of winning a real estate bidding war.
Related: The Best Ways to Find a Real Estate Agent
2. Offer cash
Even though not everyone can do it, making an all-cash offer on a house gives you an advantage over the average buyer. Sellers often do not want to deal with the likelihood that your loan might fail to come through. They also prefer cash because they may not want to wait the extra time necessary for the processing of real estate financing. Mortgages are complex lending agreements that often go wrong due to issues between the buyer and the lender. Numerous home sales have unexpectedly gone down the gutter due to mortgage issues.
As an investor, you always want to convey a keen sense of legitimacy. Offering all cash assures the seller that you can and will take the property as soon as possible without any roadblocks or third-party denials. The sellers may sometimes even reduce the sales price a little to get the cash. Everything else equal, coming with cash can double your odds of winning a real estate bidding war.
Related: Buying an Investment Property: Cash or Mortgage?
3. Get a pre-approval letter for a mortgage loan
If you cannot afford to pay in cash and need investment property financing from a lender, demonstrating the ability to secure funding is necessary to gain the trust of the seller in a real estate bidding war. You can increase your chances of beating out other potential buyers by including a pre-approval letter from your bank. It shows that your application has been underwritten by your lender and it’s only awaiting appraisal.
You will be required to provide documentation so that the mortgage company or bank can verify your assets, income, and credit report. You will then be given a letter that shows sellers how much you are qualified to borrow.
It is recommended that you submit your financing documentation to your lender in advance before looking at homes and writing any offers.
Related: All You Need to Know About a Mortgage for Rental Property
4. Waive unnecessary contingencies
Sometimes a buyer’s offer may include contingencies. These are conditions that need to be met before the sale can go through. For example, the financing contingency is an agreement that a buyer makes with a seller that the buyer will only buy the property if the loan is approved by the lender.
By waiving certain contingencies, buyers can make their offer more attractive to the seller. In a hot housing market with multiple bids, sellers usually want offers that are concise and clean. This increases your chances of winning a real estate bidding war.
Avoid including things such as inspection contingency, partner’s approval, requesting repair of certain items or asking the seller to acquire a home warranty. You should also avoid asking the seller to pay your closing costs. If there are too many contingencies like these in your contract, you are likely to get a ‘no’ from the seller.
If you want to win a real estate bidding war, you need to limit your contingencies and avoid making too many demands. Talk with your real estate agent about whether you should or can waive any contingencies.
5. Write a personal letter to the home seller
Just like buying a home, selling a home is also emotional, especially when the sellers have been in the home for a long time and even raised their kids there. In a hot market, you can increase your chances of winning a real estate bidding war if your offer is accompanied by a letter explaining who you are and why you want to buy the property. People often have an emotional attachment to their homes and having a personal touch may make your offer more attractive.
A seller might want to have a little knowledge about the next owner of their home. Sellers may be happy to know that their home will be loved and cared for in the same way they did. Talk about yourself, why you love the home and compliment them on any recent renovations or any good aspects about the property. You can highlight some of the things that you and the seller have in common, such as family life or hobbies. You can also write about your love for the neighborhood and your desire to own a rental property there. There are several approaches you can take depending on your specific situation. The original owners of the home may feel a strong connection to the buyer’s story and accept the offer, despite it being significantly lower.
Conclusion
Winning a real estate bidding war in a strong seller’s market is a fine art. With the rise in home prices and interest rates, today’s hot housing market is no longer as favorable to buyers as it was in the past. If you are trying to win a real estate bidding war, you need strategic thinking to take the right approach. The strategies you use need to fit with the needs of the seller for you to edge out the competition.
Final Tip: Make sure the investment property is worth the headache of a real estate bidding war! Find out how Mashvisor can help you analyze properties to ensure that the price you pay won’t hurt your returns.