Homebuyers

Bidding Wars 101

A bidding war occurs when two or more interested buyers want to purchase a home and provide higher offers in an attempt to gain custody of the property. This occurrence impacts buyers and sellers differently.

When selling your home, you always want to get the highest offer you can. A bidding war can drive up the selling price of your home substantially. However, as a buyer, this means shelling out more cash and creating a roadblock between you and your dream home.

Knowing how to navigate through a bidding war and what to expect as a buyer or seller can help ensure you leave the situation with the best outcome possible.

Benefits of Bidding Wars for Sellers

When selling a home, having multiple offers is an extraordinary positive. You may wind up selling your home for a far higher price than you initially anticipated which bodes well for your financial situation.

As the housing market continues to strengthen, bidding wars will become more popular, according to SF Gate. Demand for housing increases and more interested buyers want to purchase the best houses on the market.

"The housing market has been skipping along the bottom since 2007," said Doug Breaker, president and CEO of HomeFinder.com in Chicago, according to Bankrate. "There's pent-up demand now as people are finally realizing prices won't go too much lower."

Sellers can control the price and by knowing how to manipulate the situation, they can initiate a bidding war.

Get a Bidding War

Making your home appealing is the key to initiating a bidding war for your house. Location is one of the most important aspects of this.

"To get a bidding war, you have to have a good location," says Brendon DeSimone, a real estate expert in San Francisco, according to Bankrate.

A great location means you are in a desirable neighborhood. Money Talks News indicated a good neighborhood has a strong community, homeowners who make investments in improving their property, low crime numbers, a safe area for pedestrians and bikers, strong local schools, and noticeable development in the area.

In addition to having a home in a desirable location, you will want to price it lower. Overpricing will not attract a high volume of interested buyers and that's what you want.

"You don't want to go much lower than what the house is really worth because when you underprice, people will think something is wrong and start lowballing you," said Michael Corbet, author of the novel "Ready, Set, SOLD!", according to Bankrate.

This is where a real estate agent can be especially helpful. You should use comparables, or other homes in the area that have recently sold, that are no older than 60 days. This can give you an accurate idea of what your home's value is and can help you properly price it to encourage multiple offers.

In addition, you may want to hire a professional appraiser to check out your property and give you a price. This can also help you and your real estate agent decide on an appropriate price for your home.

Host an Open House for Real Estate Agents and Buyers

If you can get the attention of a buyer's real estate agent, you can get more potential buyers to gain interest in your home. Ensure that you put on a good show when you host your event. Have all esthetic issues remedied and consider hiring a home stager to make your home stand out. According to Realestate.com, hosting an open house allows you to create the best first impression possible.

Staging a house can make it sell quicker and for a higher price. In addition to looking appealing to a real estate agent, it allows an interested buyer to envision themselves in the home when they finally come to look at the property. This may lead to a heightened likelihood of a bidding war if more individuals find the home appealing.

"It has to look like it's out of the Pottery Barn magazine," said DeSimone, noted Bankrate. "Buyers fall in love with how it looks."

Ensure that you also host an open house for interested buyers as well. You want to advertise your home as much as possible to gain the interest of multiple people. Also, consider scheduling showings of your property back to back so buyers will hear one another discuss the home and their interest in purchasing. This can put a bit of pressure on those who want to make an offer on the house.

Advertise Everywhere

You want buyers aware of your newly listed home. Make pamphlets, brochures, and other materials to market your home. Consider releasing it before listing it to build a buzz. Ensure that all photographs are clear and well-lit. A real estate agent can often assist you with this and ensure you properly photograph the best features of your home.

Bidding wars will likely gain popularity as the housing market improves. More buyers are entering the market and as demand rises, the opportunity for more offers on a desirable home is more likely.

As a buyer or seller, you will adapt to a situation like this differently. While a bidding war is a great opportunity for a seller, a buyer might be stuck paying a higher price for his or her dream home.

Know how to navigate through a bidding war as a buyer and be able to win the ultimate prize.

Identify Whether the Home Is Worth Entering a Bidding War

While it may be frustrating having multiple offers denied, you do not want to enter a bidding war and wind up paying too much money for a home that isn't perfect, according to Realtor.com. Make sure the home you are looking at is worth making a higher offer on and that you are financially capable of committing that much money to purchase a property.

"To guard against making an emotion-fueled offer for a house, take a hard look at your finances," noted Realtor.com. "While it may feel good at first to beat out other buyers and to purchase a property, it won't feel so great in a year or two when you are struggling to make the payments on a house beyond your means. Know your limits before you begin to bid."

Get the Help of a Real Estate Agent

A professional in the housing industry can provide you with a great deal of insight and help you navigate through the entire homebuying process. This is especially important during a situation such as a bidding war. According to The Washington Post, a real estate agent will work for you and help you find the perfect home.

Additionally, your referral is valuable to an agent. He or she wants to ensure you are happy with your experience with him or her. This further ensures you will likely get a positive experience by working with an industry professional during the bidding process.

Prepare Yourself

Your real estate agent can also help you prepare for what's in store when embarking on a bidding war. He or she can tell you about current local market conditions and the true value of the home. It is also a good idea to ask to see other homes in the area to determine how the home compares to its neighbors.

You will also want to consult with your lender to know exactly the maximum amount they will provide to you for a new home. You want to ensure you can pay the price you offer.

Develop a Strategy

When involving yourself in a bidding war, it is crucial to first go in with a strategy. You want to hire a real estate agent who will present your offer quickly and efficiently in an appealing manner. Additionally, you can make your bid stand out in other ways aside from offering more money.

Consider writing a personal letter to the seller to help yourself stand out from others. Let them know you love and appreciate the place they have called home for so long. Personalizing your offer can help increase the appeal to a seller and you may be more likely to win the bid.

Also, eliminate contingencies. Consider having a home inspection done without making your offer depending on the inspection's results.

While money isn't everything, it certainly can help during a bidding war. Being pre-approved for a loan can make your offer more appealing to a buyer and offering to cover closing costs can also help it stand out and increase the likelihood of you winning a bidding war.

Know Your Limits

A bidding war can get exciting and you may lose sight of your finances. While the perfect home is very attractive, remember that you do have other options. Control yourself when bidding on a home and make sure you stay within the limits of what a lender will provide as well as what you can truly afford.

Celebrate If You Win

Winning a bidding war is great news. Make sure you celebrate with friends and family. You win twice when your offer is accepted - being chosen out of a crowd of other bidders and moving into the perfect home.

Don't Get Down if You Lose

While it might be frustrating to lose a house you thought you loved, don't let it bother you too much. Remember there are other homes for sale and if it wasn't meant to be, something else that is even better will come along.

Go out for dinner or cocktails with your friends and family to get your mind off of the bidding war. Keep your spirits high and keep looking for your ultimate dream home.