3 Big Buying Mistakes to Avoid in A Home Bidding War
In real estate markets where homebuyer demand exceeds the supply of homes available for sale, it's common for houses on the market to receive multiple purchase offers. And when home sellers have offers from more than one buyer, a bidding war often ensues.
It's not as violent as it sounds. The "war" simply consists of counteroffers made by the competing buyers. It can go back-and-forth, with each buyer trying to out-do the other until someone entices the seller with the winning offer.
Such a scenario is great for the seller, who usually gets a price above what they were asking, but it can be expensive for homebuyers. Sometimes, submitting the "winning" bid doesn't make total financial sense. Here are three big buying mistakes to avoid in a home bidding war.
Not making your best offer first
You might think it's gamesmanship or a strategy to save money, but in a multiple-bid situation, it almost always makes sense to make your best offer early on. Even though "bidding war" makes it sound as though you're fighting other buyers, you're really just trying to make the right impression on one seller.
Especially in a hot market, an initial offer below the asking price could offend the seller. A lowball offer can change the way the seller sees you, which could hurt you later even if you make a higher offer.
If you really love a home, why risk losing out on it when you're willing to pay more from the beginning?
Extending yourself too far
Most buyers begin their home search armed with a pre-approval letter from a mortgage lender. This gives them an idea of just how big a home loan they can afford. But what the bank says you can afford and what you truly can afford might be two different things.
If you make an offer at the very top of your budget, you must know that you truly can swing the monthly payment. Your lender is determining that top-end by using a mathematical formula, not by truly examining your spending habits. If your housing expense is going to increase by, say, $1,000 each month, only you can honestly answer whether you can afford it without stressing about it every month.
Keep in mind, too, that if you spend your entire life savings on a down payment, it could leave you house-poor. You might not have cash left to furnish or improve the home the way you'd like, and you might find yourself without any sort of rainy-day fund, which protects you against other large unexpected expenses.
Waiving the wrong contingencies
If you find yourself in a bidding war, you might be tempted to make your offer more attractive by waiving one or more of the typical contingencies in a home sale contract. Keep in mind, though, that those contingencies are meant to protect buyers.
If you're making an all-cash offer, it's reasonable to waive the financing and appraisal contingencies. But if you're taking out a loan, waiving those contingencies can be costly. You could wind up on the legal hook for a home you can't get financing for, or you might have to bring more cash to the table because the property doesn't appraise high enough for the lender.
You also might be tempted to waive the home inspection contingency, which could wind up being a huge mistake. Unless the seller provides inspection results ahead of time, passing up on an inspection could mean taking on a house that needs a new roof, has damage to the foundation or has a pest infestation. Those are all major problems.
The bottom line
Multiple-offer situations are common in many real estate markets. If you find yourself in one as a homebuyer, avoiding a few key mistakes might help you avoid expenses - and regret - down the road.
In many parts of the country, homes are currently selling quickly and above asking prices; you will need an experienced Realtor® who can guide and help you make a competitive offer. Janis Peterson, Realtor®, GRI, ABR, SRES, CSP specializes in Philadelphia Main Line real estate and homes for sale, including Montgomery County, Delaware County, and Chester County, PA, Pennsylvania, and has been helping Philadelphia Main Line Buyers and Sellers since 1994.
Janis Peterson, REALTOR®, GRI, ABR, SRES, CSP
Long and Foster Real Estate, Inc.
355 Lancaster Ave. Suite 100
Haverford, PA 19041