According to the Bank of Montreal, a large percentage of Canadians are aware that it’s wiser to establish a budget and stick to it rather than engage in a nerve wrecking and often costly bidding war. Nevertheless, based on a poll made by BMO Home Buying Report, more than 28% of those interested in buying a home are willing to fight over the property. This is an especially prevalent trend among first-time homebuyers who come across under-priced properties. Apparently, some real estate agents and sellers intentionally set low prices on home for the purpose of inciting competition among interested buyers.
In spite of the popular belief, offering the biggest amount of cash for the property is not guaranteed to win you deal. In fact, nowadays sellers prefer a more cautious approach and will almost always favour the offers that meet the conditions, and are likely to go through. In case you’re interested in investing in a house or property and you’re facing a bidding war, here are some tips.
Make sure to carry the proof that you’re a serious buyer with you at all times
Since it’s impossible to walk around with all-cash offer with you at all times, consider carrying a statement hardcopy that shows you have the funds with you at all times. Having a pre-approval on a loan with you as well is bound to make you look like a serious buyer. In general, these funds should be the equivalent of 20% of the down payment, especially if you know that you’ll be meeting other serious buyers during the first visit.
The pre-approval and the copy will tell the seller that not only do you have the necessary funds to secure the transaction, but you can also compensate for the difference in the event that the original appraisal is too low. According to real estate agents, it’s a common practice to include a financial information sheet detailing your salary, bonuses, job history and retirement plan along with the offer. After all, sellers are more inclined to negotiate with potential buyers who offer a guarantee they can close the deal.
Take the time to come up with a personalized offer
If you’re serious about competing against other strong buyers, then it’s imperious that you visit the house on the first day it goes on the market. In addition, you should have your real estate agent go through the listing and identify the seller’s motivation and their needs. Upon determining these facts, you can create a personalized offer reflecting the fact that you’re a flexible buyer. Without denying that the price you’re willing to offer is important, take note that most sellers are actually capable of meeting the imposed conditions and finance the property.
Be certain the home inspector is willing to help you out when the situation calls
The importance of refraining from purchasing a home without carrying out a thorough inspection made by an unbiased third-party professional cannot be stressed enough. Then again, in some cases, sellers are forced to provide you with a home inspection report. Therefore, if you’re really keen on investing in that property, take the time to read the disclosures and reports carefully.
Alternatively, you can consider performing the inspection after your offer was accepted. In case you are ready to give up on the inspection contingency completely, then you could bring a home inspector with you on the first visit saying that he/she is a friend. A professional’s feel for the condition of the house can at least bring you some peace of mind.
Try to minimize contingencies
By far the best method of strengthening your negotiation position is to eliminate the contingencies regarding home inspection altogether. However, if you choose to pursue this path then you will have to make sure that you actually have the necessary cash reserves to cover the difference between your offer and the low appraisal.
At the same time, while it’s true that eliminating the financing contingency will put you in a stronger position, you shouldn’t do it because this constitutes your safety net. The best approach is to minimize contingencies and make a tempting offer for the property while also having some certainty that the home is in a good condition.
Consider an escalation clause
The escalation clause refers to an addendum to the contract that permits your real estate agent to offer a specific amount over the best offer the seller has received. A few years ago, when the housing market was booming, buyers didn’t give a second thought to the escalation clause. The only exception was when they found a property that was way below the market value. Even though it is a powerful tool in your hands, you have to be careful regarding how high you are willing to go; after all, remember that you are due for that amount if it actually reaches the peak sum.