In a slow housing market, you may have the time to negotiate and contemplate your decision at your leisure. But if houses are selling like hotcakes in the area where you're looking at real estate for sale, you need to be prepared to move quickly. Sellers may be fielding multiple offers in a short period of time, and you need your offer to stand out from the others. Take a look at some tips that can help give you the edge when you find yourself in a bidding war in an intense home-buying market.
Get Your Financing in Order Ahead of Time
In many cases, some advance preparation can make all the difference. If you don't have anything other than your word that you can get financing and the seller has offers from several other buyers who already have their financing lined up, then your offer is most likely going to be rejected in favor of one that looks like a sure thing.
There are two different things you can do to strengthen the seller's impression of your finances from the beginning. The first is a mortgage pre-qualification. This is when you provide the bank with information about your finances, and they provide you with a letter stating how much money you may be able to borrow. It's not a commitment, but it does show the seller that you have taken at least the initial steps to establish that you'll be able to get financing.
A mortgage pre-approval is a conditional commitment from the bank to lend you a certain amount of money for a mortgage. Getting a pre-approval involves filling out a full application, and having one puts you on firm ground when you're making an offer.
Although a pre-approval is a firmer commitment—and therefore, more of a sure thing to the seller—than a pre-qualification, be careful about applying for a pre-approval. A pre-approval is good for only a certain period of time, and it will show up as an inquiry on your credit history, potentially affecting your score. That means that if you don't buy a home before the pre-approval expires, you may get a less attractive offer the next time. If you're not sure that you'll be ready to buy within 90 days, opt for a prequalification instead.
Make Your Case to the Seller
Don't just make an offer—make a case to the seller about why you want to buy the house. If you're buying from a homeowner and not a real estate developer, letting them know what you love about the house and the future you envision for it can really help tip the scales in your favor.
For example, you could write a cover letter describing how much your kids will love the backyard or ways in which the neighborhood suits your family's needs. A seller who loves their home will often want to sell it to someone who seems to love it just as much and who will enjoy taking care of it. This kind of letter may not be enough to counter a much larger offer, but if the seller has several similar offers, a heartfelt description of your dreams for the home could be a deciding factor.
Make a Competitive Offer
This is where the importance of knowing the market really comes into play. In a slow market, you might make a lowball offer first. If you get lucky and the house has been on the market for a while, the seller may accept it right away. Even if they don't, you'll have plenty of room to negotiate upward before you reach your upper limit.
But in a fast-moving market, you don't have this luxury. If the seller is sorting through multiple competitive offers—some may even be over the asking price—they aren't going to take your lowball offer seriously. You should still leave yourself some room to increase your offer, but put forth a competitive, realistic offer in the ballpark of the asking price.
Working with a real estate agent who knows the local market well is the best way to ensure success. Find an experienced real estate agent in the area you want to buy in and take their advice to heart.