The real estate market is hot, hot, hot and most marketplaces are experiencing an extreme shortage in new inventory. What does it all mean? First, if you have a house to sell, it's a great time to do just that. Assuming you price the property correctly, there's a good chance you will end up in a bidding war. If you are a buyer, on the other hand, you need to know how to win a bidding war because if you are shopping for a home, there's a good chance you will find yourself in one.
Pull at Heartstrings: You may not be able to win the bidding war by throwing money at the sellers. For one, you may not have the money to do that. For two, if you are getting a mortgage on the property, your bank won't let you pay above market value for the home unless you can come up with the cash difference between what you are bidding and the loan amount you can get based on the market value. The good news is that most of the buyers you are bidding against are in the same exact position. The issue that some buyers face is that if you are bidding against a buyer who is paying cash or can put a large chunk of money down, there's a good chance you'll lose on price. Assuming that you can't bid more than asking price, consider pulling at the emotions of the seller. This means that you should sit down and write a heartfelt letter about why you want the property and what it means to you and your family. Money isn't the only thing that talks sometimes. Some sellers are more interested in finding the right buyer who is going to take great care of the place they called home for many years.
Your Agent Matters: In this market, it's more important than ever to find a great real estate agent to work with. First, ask the agents you are considering if they are full time. You can't afford working with an agent who only sells real estate three hours a month. You need someone who can jump on a hot property the second it comes on the market. Second, you want to ask the agent what their negotiating strategy is when it comes to bidding wars. For example, many buyer agents will talk about the importance of asking the seller if they can present the offer in person, so that your offer isn't left in the hands of another agent with whom you have no rapport.
Be Ready: If you are going into a bidding war you cannot do so if you are not fully approved with a lender. Do not even bother bidding on the property if you don't have a pre-approval letter where the lender has already reviewed credit, tax returns, bank statements, and qualifications. Sellers will have too many offers from qualified buyers who are ready to buy and they are not going to wait on you.
Price: Last but not least, you can always bid more than everyone else. Do not do this without talking to your lender about your options. Just because you are willing to pay more doesn't mean the bank will let you. You can pay more than market value for the property if you are putting a substantial amount of money down (20% or more usually) or if you are paying cash. In these instances, you can craft your offer so that it's hard to lose, with a clause such as "Buyer will pay $2500 more than the highest offer presented on a particular date." Even in these instances it's a good idea to put a cap on what you are willing to spend.
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