Figuring out the price a seller wants for their home can seem intimidating. What if you bid too low? You stand to lose the house. If you bid higher than necessary, though, you throw money out the window. What is the magic secret to make your home purchase bid appealing? We share a few tips to help your home bidding process below.
Get a Preapproval Letter
Before you start shopping for a home, get preapproved for a mortgage. This speaks volumes to sellers. Without that letter, sellers do not know if you are serious about purchasing a home. Maybe you are a nosy neighbor or just like to look at homes. Sellers do not want to waste their time. The preapproval letter shows the seller not only that you are interested, but also that you are eligible for a loan high enough to purchase the home. Oftentimes, the preapproval letter can supersede a higher bid without a preapproval letter.
Stick With Conventional Financing
Certain sellers still think the “old school” way and prefer conventional financing over government-backed financing. While FHA loans have come a long way and pose very few problems for sellers, many still hold back. If you can qualify for conventional financing, opt for that when making a home purchase bid. There is something about seeing the words “conventional financing” that appeal to sellers. Of course, if you do not qualify for conventional financing, you can make your bid appealing in other ways.
Have Flexible Closing Dates
Bidding on a home also involves choosing the closing date. Usually, you close between 30 and 90 days from the date of the contract. However, knowing what the seller needs can help you bid right. If the seller put the house up early and will not have another house ready for 90 days, for example, give them the 90 days. This will make them more likely to choose your bid over someone who wants to move in right away. If the seller must move before they are ready, it means more expenses for them as they look for temporary housing. Getting to know the seller and their needs can greatly help your cause.
Limit Your Contingencies
You want an easy way out of a contract if something were to go wrong, but this can hamper your bidding efforts. Sellers want to know beyond a reasonable doubt that your bid is serious and that you will purchase the home. If they think there is a chance you might back out, they may choose another more concrete offer. The most common contingencies people use on sales contracts include:
- Inspection – This gives you time to have an inspection done and to review the report. If there is something really wrong with the home, you can back out of the contract. While you probably should not omit this contingency, you can at least minimize the time you require to complete the process. Usually 7-10 days suffice, especially if you already have an inspector chosen.
- Financing – This gives you an out if you cannot secure financing. However, if you have a pre-approval and cooperate with your lender, you may not need this contingency for long. Don’t ask for an extended period to secure financing – asking for 3 weeks is typically plenty of time to secure the final approval if you did the preliminary work.
- Appraisal – If the value of the home is not as high as you bid, you could be without financing. However, if you have a financing contingency on the home, that gives you an out. Adding the financing and appraisal contingency onto the contract can be too many ways out for the seller. Choose one and stick with it.
If you really want all of the contingencies on your contract, at the very least, limit their duration. If you ask for a 45-day financing contingency, chances are sellers will turn you down. If, on the other hand, you keep your timeframes within the normal range, you will likely be in good company with other bidders.
Get Personal to Make Your Home Purchase Bid Appealing
There is nothing wrong with getting to know the seller. After all, they are selling you something that is very near and dear to their heart. If the seller finds something they have in common with you, they may choose your bid over anyone else’s just for the personal satisfaction of the deal. Some realtors suggest you write a personal letter to the sellers. This is important when you deal through a realtor as you likely have little contact with the seller’s themselves. Let them know why you want the house. What drew you to it and what do you like about the area? You never know when your reasons will resonate with the seller and cause them to choose you.
Use the Escalation Offer
Many bidders assume they have to go straight to their highest bid. This is not the case, though. You can bid lower with what is called an escalation clause. This shows the seller you are motivated and will negotiate if someone outbids you. This differs from flat out offering the highest bid available. Sellers may overlook that bid for the one that offers the escalation because they know that bidder really wants the home. You can set your escalation offer at a specific amount. For example, you place your bid and tell the seller you will go $3,000 over the highest bid as long as it does not exceed X amount of dollars.
Making your home purchase bid attractive is not as scary as it seems. Make sure you have help with the process from your realtor or attorney to make the process less stressful. In a hot market, you could have multiple people bidding on the same home. Do your legwork to make sure you have the most attractive bid. This does not mean the highest; instead, it means the one that the seller feels compelled to choose.