Right now, demand is high, inventory is low, and mortgage rates are still fairly low. All of that means that multiple offers on homes and bidding wars are common. The standard scenario is that you will be competing against several or many other buyers when you make a home. So you have to find ways to get a competitive edge and make your offer stand out above the others. Read on to find out how to win a bidding war when buying a house in New Jersey.
Get Pre-Approved and Have Letter in Hand
One of the first things you should do to win a bidding war when buying a New Jersey is to get a mortgage pre-approval letter. It proves that you can get financing and that you are indeed a serious buyer.
Mortgage pre-approval, experts say, “is essential, especially in a bidding war. With a mortgage preapproval, a lender evaluates every detail of your finances, including your credit score and report, and decides if it will loan you money to buy a house. Preapproval is based on documentation like W-2 tax forms and bank statements.”
So, barring any major financial changes, a pre-approval letter provides proof that you can get the requisite financing and that your offer is a solid one. In fact, many sellers will reject outright any offer that isn’t accompanied by a pre-approval letter.
Insert an Escalation Clause
Some people advise simply making the highest offer to win a bidding war, but that’s not always the wisest move. Better is to add an escalation clause to avoid overpaying.
“Here’s how it works: Imagine that you want to make an offer on a house for $150,000. You believe that you’ll face competition for the home, but you aren’t sure how much your competitors are offering. Your real estate agent can write an escalation clause into your offer that says you’ll pay a certain dollar amount above any offer up to your budget limit. . . . [Y]ou might offer to outbid any competing offers by $1,000 up to $155,000. This way, you can still outbid other home buyers with your absolute best offer without offering too much money upfront.”
To learn more about escalation clauses and how to use them, contact a New Jersey agent at 855-966-DEAL.
Reduce or Eliminate Contingencies
Another effective tactic you can use to win a bidding war involves reducing (or possibly eliminating) contingencies. “Contingencies are specific conditions that must be met before the sale can be completed,” and dropping them can make your offer much stronger.
Keep in mind, though, that this tactic does carry some risk because contingencies, such as a home sale contingency, are in place to protect the buyer. Contact a New Jersey agent at 855-966-DEAL to find out the best way to proceed here.
Modify the Inspection Requirements
Some advocate waiving the inspection to win a bidding war, but that is usually just too risky. A better course to modify the inspection requirements.
“When bidding on a house, it can be tempting to waive the inspection requirement, but that comes with the risk of buying a property that has significant problems. . . . Instead of waiving an inspection completely, buyers can use a pass-fail inspection. This method promises that a buyer won’t require a seller to make improvements to a home based on an inspection report, and if the inspection causes the buyer to walk away from the sale, the seller can keep half the earnest money.”
Include Appraisal Gap Guarantee
An appraisal gap guarantee is another strategy you can deploy in a bidding war when buying a New Jersey house – if, that is, you are financially able.
The reality today is that many homes are selling for above the asking price. The problem in this is that the property may not appraise for the amount a buyer offers above the asking price, and lenders typically won’t lend above the appraised value. In such a case, an appraisal gap guarantee tells the seller that you “will pay cash, up to a certain amount, to cover the gap between the appraised value and the bid amount.”
Personalize Your Offer
You can also personalize your offer to help you win a bidding war. A common way to do this is by including a personal letter with your offer, a letter that introduces you and explains why your offer should be selected. It just gives you a slight competitive edge with the personal touch.
Keep in mind, though, that this tactic is now frowned on in some circles because there is the potential for fair housing complaints. But there are other ways to personalize your offer, and your agent can help you with these.
Get the Bidding War Advantage
As is probably obvious by now, one of the best things you can do to win a bidding war is to work with an experienced, local New Jersey agent. With her deep knowledge of the local market and negotiation skills, your agent can help you get the competitive advantage you need. So when buying a house in New Jersey and a bidding war is looming, be sure to contact us at 855-966-DEAL.