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How to Avoid a Bidding War When Buying a Home in the Charleston Area
Bidding wars are one of the challenges buyers are facing in the Charleston real estate market and many other areas as well. But, don't let buyer competition in this hot market keep you from fulfilling your dream of owning a home.
We're here to show you how to avoid a bidding war and get the house you want.
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Why is the market so competitive for home buyers right now?
Record-low mortgage rates have sparked high demand among homebuyers all over the country and the situation is no different here in the Charleston, South Carolina area. Current homeowners haven’t put their houses on the market that quickly - whether due to reluctance to have strangers in their home during a pandemic, or because they want to take advantage of the low interest rates themselves. The result is a significant reduction in available homes for sale and a noticeable increase in the sale price.
Facing the challenge of finding a home to buy, many potential buyers searching for their dream homes have been pressing pause on their searches. However, that could be a big mistake for many hopeful house hunters.
According to the most recent Housing Trends Report from the National Association of Home Builders (NAHB):
“62% of buyers now spend 3 months or more looking for a home, an increase from 58% one year ago."
Heavy competition on what homes are available is giving buyers considerable challenges when making an offer on a home.
Based on recent data from the National Association of Realtors (NAR), the average house in today’s market receives 3.4 offers before it’s sold. This, of course, means that there are 2-3 buyers that will have to start their home search all over again.
These factors all contribute to the potential for bidding wars on homes to become more and more commonplace.
However, this shouldn't be a reason to sit on the sidelines and wait. Home inventory has begun to increase slightly and experts anticipate home prices will continue to rise in 2021 as well as the historically low interest rates as the economy continues to strengthen. This could create a situation in which home buyers who decided to wait are faced with a more expensive housing market when they decide to start looking again.
So, are you ready to arm yourself with the tools you need to win a bidding war (or avoid one altogether)? Let's take a look at the top tips you can use to have your offer picked in this competitive market!
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Have Your Pre-Approval Letter Ready
I really don't think we can say this enough. We've mentioned it when we talked about how to buy a house as a single mother and we mentioned it again when we talked about where to start when you want to buy a house. And even if it's a buyer or seller's market - getting your pre-approval letter and having it ready to go ensures a seller knows you're really serious about the buying process and you're a low-risk option to make a deal with.
An important thing to note here is that a pre-approval is not the same as a pre-qualification. A pre-approval letter has taken into account your specific financial information that your mortgage lender has reviewed and provided an official amount you're qualified to purchase a home for. Your pre-approval letter tells the seller that you won't run into any issues getting a mortgage to purchase their home.
Weigh the Option to Make the Highest Offer
Of course, 9 times out of 10, the highest bidder wins in a competitive situation. And it's no different when making an offer on a home.
In a buyer's market, you might have your offer accepted when it's the exact list price or even lower. However, in a seller's market as it is now it's going to be a rare case for anything less than the list price or above to be the final purchase price of the home.
However, we'd never recommend our clients put themselves in a compromising position by offering more than they can afford and by no means going outside their initial budget. So, how can a buyer be the most informed about the type of competition they're facing? This is where having a qualified Realtor® working for you is crucial. Your Realtor® should be willing to get in contact with the listing agent to provide insight into the situation. And in turn, your agent can advise you on the best approach based on that info and their knowledge of the local market. Your agent's goal should be to balance acquiring the home you want with getting it for the best price.
Utilize an Escalation Clause
Another way to find this balance is to use what's called an escalation clause in your offer. An escalation clause states that you'll pay any offer amount up to a certain number above any offer not to exceed your budget limit.
If you and your Realtor® know they'll be competition for the home and you're very interested but don't want to overpay - this clause allows you to set a dollar amount you're willing to outbid any other offer up to a certain budget limit.
For example, your budget is $355,000 and you've decided to make an offer on a $300,000 home but you know there'll be competition. The escalation clause can state you're offering $300,000 and will outbid any competing offers by $1,200 up to your budget of $355,000.
This allows you to outbid other buyers with your highest offer without immediately offering the max amount of your budget. If the competition on the home is less than you thought, you won't overpay. And if the competition is stiff and your highest offer isn't accepted, you'll walk away knowing you made smart decisions and stayed within your budgeted price range.
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Write a Personal Letter
In the past, a very popular tactic was to write a personal letter or a “Love Letter” to the seller. This letter was a personal appeal to sway the seller so they might accept your offer over other tempting offers.
While it may seem like an even more appropriate time to use this tactic because of competition, the ever-growing issue with “Love Letters” is that these types of communication with the sellers offer the type of personal information that can create biased decisions, thereby violating the Fair Housing Act. For this reason, we don’t recommend using this method as it could actually jeopardize your chances. It’s better to leave the stationery and pens on the desk.
Offer All-Cash if You're Able
The demand for homes in the current market has seen an increase in all-cash offers by prospective buyers. An All-cash offer can mean a quick closing, avoids any issues with underwriting or mortgage approval, and provides the seller little-to-no stress about the process if they're looking to get their home sold.
If you're able to offer cash to purchase a home, this might be a way to jump to the front of the line.
Waive Some or All Contingencies
Contingencies specify certain conditions that need to be met in order for the sale of the home to go through. Even if homes are quickly being snapped up when they hit the market - that doesn't mean those initial sales go through. Problems can come up during the home buying process to cause issues. Sellers don't want to deal with the burden of re-listing and reshowing their home if a sale falls through from a contingency not being met.
Another way to help your chances when making an offer on a home is to waive some or all of your contingencies. One potential item could be the appraisal contingency of the home. You may offer to pay up to a certain amount if the home doesn't appraise for the originally agreed-upon purchase price.
However, you should be very careful about waiving any contingency that may put you in a precarious situation either financially or with the condition of the home later down the line.
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Waive the Home Inspection
This option is available, although we don't recommend it. If you're handy around the house or well-versed in home repairs, you could consider waiving the home inspection. Also, a consideration to waive the home inspection may also be based on the age and condition of the home; there may be recent updates the seller has made (HVAC, roof, etc), or the home could be fairly new in age. Most offers include a provision that you can back out of the sale of the home if major problems are revealed during an inspection. Waiving your right to a home inspection removes any recourse you would have had if you do find any major and expensive issues with the home. If you've waived the home inspection and discover the plumbing needs to be replaced - you can guess who's on the hook for the final bill. Also, keep in mind that there's a difference between a home inspection vs. a home appraisal; the first looks at the condition of the home while the second considers the value.
Based on the circumstances, if you do decide to waive the home inspection, we highly recommend that you still obtain one on your own. Having a home inspection is always great to have so you’re well aware of the current condition and recommended maintenance of your investment.
If the Home is Contingent, All hope is not lost
If the seller of your dream home accepts another offer and it goes contingent, your Realtor® can inquire whether the seller is accepting back up offers during the pending sale. There are instances in which the buyer fails to secure financing, backs out due to home inspection issues or the appraisal price, etc. There's also the possibility the seller may have included what's called a "Kick-Out" clause in the contract. This allows the seller to continue accepting offers while the buyer completes inspections, appraisals, etc. and if the seller gets a better offer, they could request the buyer adjusts their offer to match, waive contingencies or several other items that could cause the deal to fall through - thereby creating the situation in which your offer is accepted.
Bidding wars may be one of the greatest challenges buyers face in today’s real estate market, but they shouldn’t be a deal-breaker. Having a great real estate agent on your side throughout the buying process will give you the advantage you need when it comes to finding the right home and making a competitive offer. If you’re ready to buy, or even if you're in the beginning stages and are wondering where to start when you want to buy a home, let’s connect; contact us to discuss how to position you for home buying success.