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Winning a Bidding War for a House
What a difference a couple of years makes. The housing market, which was in the doldrums for several years, is getting very hot. In many parts of the country, low housing inventory has led to higher prices for homes and occasionally even to bidding wars. If you are a potential buyer, how can you avoid a bidding war – or win one if you can’t avoid it? CNNMoney.com has some suggestions:
Pay cash. Many sellers are willing to settle for a little less if it also means a lot less hassle, and a cash sale is the most hassle-free of all. Cash sales are becoming increasingly common: More than 40 percent of recent home sales have been all cash. In a cash sale, there is no waiting and no uncertainty while the buyer waits for mortgage approval.
Be pre-underwritten for a mortgage. If you can’t pay cash, make sure you are pre-underwritten for your mortgage. This means that all your paperwork is complete so it is virtually certain you will get the mortgage, and the seller does not have to wait while you go through the mortgage approval process.
Don’t ask for too many contingencies. Again, it is about making things simple and quick for the seller. For example, sometimes an offer is contingent on the buyers selling their current home. But if you are confident you will be able to sell, you might not feel you need to ask for that. Realize, though, that if you don’t sell your home you could end up with two mortgage payments. And always make your offer contingent on a home inspection; you don’t want to discover after you buy that the house has some serious and very expensive problems.
Jump on it. If you are the first to see a home, you could be the first to make an offer. And a quick offer, assuming it is reasonable, is very attractive to many sellers. If you are working with a real estate agent, he or she should be able to let you know when a home you might be interested in is coming on the market.
Raise your offer. If you find the home of your dreams and you can’t imagine not living there, you can set up your offer with a clause that automatically pays more than any other bid. For example, you can say that you will beat any other bid by $1,000 or even more. However, be aware that if you keep upping your bid, you could end up paying more for the house than it is worth, which could make it hard for you to get a mortgage. You can put a cap on how high you will go. But of course, that means you could end up losing the bidding war.