Over the last 24 months, the real estate market across the country has experienced explosive growth, and most industry experts don’t see a slowdown in 2022. Because of this we are seeing more and more real estate bidding wars in SW Florida.
Although interest rates are rising slightly, current conditions are clearly in favor of the seller. Homes in all categories, from modest condos and modular homes to palatial mansions, are being marketed for considerably more than the same home would have brought just 2 years ago.
The competition is so robust that homes are often being sold for much more than the original list price, in some cases up to tens of thousands of dollars more.
Another phenomenon that the real estate market is experiencing for the first time in decades is buyer bidding wars, where 2 or several more potential buyers are feverishly trying to buy the same home, and pulling out all the stops to get the home of their dreams.
There is a fine line separating a realistic bidding war and losing your emotions – and typically a lot of money – by paying an unrealistic purchase price on your next home. If you suddenly find yourself in a bidding war, here are some things you need to know to win real estate bidding wars in SW Florida.
Inventory Drives Demand
Just like in most other commodities, the number of homes being marketed for sale greatly influences the amount someone is willing to pay. The more inventory, the less pent up demand of buyers looking for their next property, and the less chance of becoming involved in a bidding war.
Time on the market is also a key factor in buying a home. Currently, homes that hit the market are lasting an average of 60 days until they’re sold, according to the National Association of REALTORS®. The term “buying frenzy” is not uncommon these days, and there are certain things a buyer needs to keep in mind in order to not end up in a costly nightmare.
Know Your Financial Limits
A real estate bidding war is a lot like playing poker – you shouldn’t bet more than you can afford. It is imperative to not get so emotionally attached to a prospective new home that you lose sight of your finances and end up being unable to perform on the purchase contract. There will be other homes, and keeping a realistic perspective in a bidding war can save you from the misery of overpaying and realizing you can’t afford the home you just bought.
Get a Loan Preapproval
A seller will be more willing to consider your purchase offer if you’ve received a verifiable preapproval from a legitimate mortgage lender. In today’s highly competitive market, like Naples for instance, a buyer who is not preapproved is really wasting time in looking at homes – their time, the seller’s time, and the real estate agent’s time.
Another significant factor in getting a mortgage preapproval is the amount of time between making an offer and closing on the sale. The less time involved, the more attractive your offer will be to the seller. Some lenders will add the expected number of days until closing the loan, barring any contingencies, into the preapproval agreement.
Another key to closing on a home sale quickly is the home inspection process. A professional real estate expert will have access to reputable home inspection services that will commit to a quick inspection, often within 5 to 7 business days, adding more incentive for the seller to work with you and accept your purchase offer.
Put More Money Down as an Earnest Money Deposit
Although not easily achieved by some potential buyers, putting more of a cash deposit down along with your purchase offer shows you may be more serious about following through with the transaction. Generally, an earnest money deposit at the time of submitting a purchase offer is around 1% to 5% of the purchase price.
Of course, if for some reason you end up not being able to execute the terms of the contract for reasons not included in any contingency clause, you will lose that money. So be sure you have considered all possible roadblocks that may keep you from going through with closing before you increase your earnest money deposit.
Include an Escalation Clause in Your Offer
Be sure to add an escalation clause to your purchase contract. This alerts the seller that you are willing to raise your offer should someone else bid more than you for the home. You may want to include limits to this clause to reduce the risk of offering more than you can afford. Having a maximum amount you will spend on a given home just makes good business sense and can save a lot of heartache and financial hardship later.
Pay All Cash if You Can
A seller who receives an all-cash offer knows there will be no hassles or delays in the buyer receiving a mortgage loan on the home, which means a faster, smoother closing. This can be a slippery slope, however, if you’re borrowing against or cashing out another financial asset to buy the house. You should speak to a trusted financial planner to make sure it makes sense to liquidate any other asset for cash to use buying a home.
Reduce or Eliminate Any Contingencies
A contingency is a clause in a purchase contract agreement that stipulates any “what happens if” scenarios. As an example, you may offer to buy a home for all cash with a 7-day closing, but only if you are successful in selling your current home. This can be a red flag for the seller, and potentially be the difference in them accepting your offer over another. The fewer contingencies included in your offer, the better the odds of an acceptance from the seller.
We’ve seen the news stories and heard from parties involved in recent home purchase transactions about the sheer demand for homes, with numerous people making offers within days or even hours of a property hitting the market, and people lining up outside the door at an open house. Putting contingencies in your purchase offer simply means yours may end up at the bottom of a big pile, if it is even considered at all.
A good purchase offer involves a certain amount of flexibility on the part of the prospective buyer. Things like the date you’d like to take possession and move in should not be etched in stone, in case the seller does not agree with your terms. Another key item involves any potential repairs the home may need prior to closing.
If a home inspector reports that the home needs a new roof or HVAC system, you can negotiate that with the seller in order to make it more appealing to them, like offering to split the cost of repairs with them or waiving the repair contingency altogether.
Communicate with the Seller to Demonstrate Sincerity
It may sound a little old fashioned, but many sales have gone through after a seller learns just how much you want their home. A hand-written note to the seller, submitted through your real estate agent or that of the seller, can go a long way in getting the deal done.
Sometimes, a heartfelt letter to the seller can make a difference in them accepting your bid over another. For example, a young couple buying their first home together can get the attention of a seller more than someone who may be buying the home as an investment or vacation property. Never underestimate the power of emotion in something as important as the purchase of real property – in many cases, it comes down to just how comfortable the seller is with turning over their home to you.
Buckle Up and Hold On
The current market bodes well for sellers, and potential buyers can find themselves in an unexpected and unfamiliar situation in trying to make an offer on a house. First-time buyers, especially, are often not expecting the realities of submitting an offer along with multiple other prospective buyers, and what is involved in coming out on top. This is why enlisting the services of a knowledgeable real estate sales professional who has an intimate knowledge of the local market conditions, and a proven track record of sales success, is a good idea in today’s volatile market.
Hopefully, these suggestions will help you win real estate bidding wars in SW Florida.