The snow is melting, the sun is shining, the geese are back....and so are the bidding wars!
It is heartbreaking to "lose" a house in a bidding war, and nerve-wracking to "win" one if you fear you overpaid.
Here is my advice about how to create the strongest possible offer--without going all the way to crazy and overspending.
Start 4-6 months ahead. Start going to open houses 4-6 months ahead of time. If you're familiar with the market and have seen enough duds to recognize a real gem, you'll be way more capable of pouncing when that perfect house comes up. The biggest problem with buyers that are brand new to the market is that they believe good houses are a dime a dozen. Buyers that have been beaten down by 6+ months of trying to replicate the house that got away when they first started looking will tell you differently.
Get pre-approved. Get a letter from your lender that states the amount that you are pre-approved to spend. This doesn't guarantee to the vendor that you can buy the home, but its the next best thing because it shows you have started the process already, have your ducks in a row, and can theoretically afford the home.
Even better, get rid of your financing condition. If offer A is for $300,000 and offer B is for $305,000 with a condition that they have 5 days to cancel the deal if they can't obtain financing, which would you choose? Most vendors will take the security of Option 1, even though its for a lower amount. With a condition on your offer, you'll usually have to be $5k to $10k higher than an unconditional offer to get the home. In other words, having a condition on your offer costs you real money. Send the MLS information to your lender and find out if you can make an offer without a financing condition, and up to what amount.
Do the home inspection first. Particularly in Winnipeg with so many older houses on the market, the condition of a home inspection scares vendors silly. It basically gives you carte blanche to walk away from the deal--for good reason (the foundation is shot) or not (a lightbulb was burnt out) which means that vendors perceive the offer to be shaky. For an older home, you will probably need to outbid an offer without a home inspection condition by more like $10-$20k to get the home. Even though a home inspection costs around $500, if you're serious about the home and know you can afford to offer a realistic amount above the list price, you should do the home inspection before the offer night, and submit an unconditional offer.
Find out the seller's preferred possession date and do everything in your power to meet it. If you can't meet their possession, at least indicate openness to correct whatever's preventing you from meeting it--let them know you'll try to sublease your apartment, or when your house sells you'll try to move the possession up.
Write a letter to the vendors. This can be a nice way of trying to connect with the sellers, and can help you personalize any elements of your offer that may not be perfect. "We need a long possession date because our children will be switching schools." "We own our current home outright so financing won't be a problem--we just need a few days for paperwork." Or just the plain old personal touch: "I grew up across the street and can't wait to raise my kids here too." From my experience representing vendors choosing between multiple similar offers, I can tell you this works.
Price it right. Of course everyone worries they are overpaying. The first thing you need to do is get a knowledgeable and experienced realtor who can give you a good idea in advance of what the likely selling price will be. You should always go into a multiple bidding situation with a very clear idea of what you will offer, which should be based on the evidence your agent has provided you. You should never be surprised by how much you end up spending in a bidding war. Your realtor should give you 3 numbers:
- Fair value. Homes are often underpriced as a technique to generate a bidding war. Your realtor need to analyze the comparable sales and give you an assessment of the true market value, which could easily be significantly more than list price.
- The premium price. Particularly for hot homes in hot areas, you need to pay a premium to secure the home as fair value often won't cut it. If you're planning for the home to be a lifetime home, 25 years from now the extra $10k you had to spend to get the home will be a drop in the bucket compared with a lifetime in the perfect home.
- The crazytown number. Your realtor needs to give you a good idea of what the all-the-way-to-crazy number is, so you can stay well beneath it. Either without good advice, or with too much emotion on board, people do overpay for houses. If you lose out to someone who overpays, its OK because you didn't want it at that price, anyways.
Winning in a multiple bidding scenario is not hard with good strategy, real preparation, and sound advice. Meaning that you don't have to lose out on so many homes that you end up overpaying for the last one just to get it over with.
The final tip? Call me. You need good, sound advice, which I can give you.