What bidding war strategies can first-time homebuyers use?
Set your limit and stick to it. One question that might keep popping up during a bidding war is “How much more can I afford?” The best approach is to set your maximum purchase limit, and never waver from it. When you make an offer, you can incorporate an escalation clause that increases your original offer by setting increments up to a maximum threshold when bids come in from other competitors. This automatically keeps you in the bidding war up to your maximum, without you having to make new offers. The escalation clause takes the emotion out of the bidding process and can potentially save you lots of money.
Make a big offer without contingencies. Make an offer at or over the asking price, and don’t include normal contingencies. You could remove the appraisal contingency which means offering to pay the shortfall if the house appraises low and your loan only covers the appraised amount. You could also waive the home inspection but that does carry a high risk.
Be persistent. If a contract is negotiated between a homebuying competitor and the seller, don’t give up. Though most contracts go through to completion. If you make a back-up offer, you still may have a shot, especially if you have room to come in higher. Deals fall apart all the time, so stay in the game until the title changes hands.
What types of home loans are best for bidding wars? Sellers love all-cash or mostly cash offers because they remove potential hurdles involved with buyer financing. A conventional home loan, accompanied by a healthy down payment (20% or more), will usually demonstrate you’re ready, willing, and able to make a serious offer on the home.