Tips for Winning a Farmington Hills MI Real Estate Bidding War

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Tips for Winning a Farmington Hills MI Real Estate Bidding War

After weeks, maybe even months, searching for a home in a low-inventory competitive market, you finally uncover the perfect home for your family. It’s in the right neighborhood, near top-rated schools, has the right number of bedrooms, and provides convenient access to everyday amenities. The house has everything you have been dreaming so you decide to make an offer. But, because of the current housing market, your Farmington Hills MI REALTOR® comes back with the news that several other buyers have also submitted offers on the home. Suddenly you find yourself in a situation with multiple buyers vying for the same property, otherwise known as a bidding war. 

With so few houses for sale today and historically low mortgage rates driving buyer activity, bidding wars are becoming the new norm. In a bidding war, each buyer will make a more attractive offer, often driving up the price beyond what it was listed for, in hopes of winning the home. Although bidding wars are more likely to occur during hot seller’s markets when there is less inventory for buyers to choose from, the quality of the property, the desirability of its location, and the strength of its school district can also increase the chances of a bidding war. If you do find yourself in a bidding war, there are some things you can do to make your offer more appealing to the seller than the other offers. 

Here are some things you can do to up your chances of winning in a multiple-offer situation:

Hire an experienced Farmington Hills MI real estate agent

If you are serious about winning a bidding war, it would be wise to enlist the services of a reputable, seasoned real estate agent. A qualified REALTOR® will have the experience and skills necessary to help you win in a multiple bid situation. They will also have extensive market knowledge, which is crucial in determining the fair market value of the home you’re interested in.

By enlisting the services of a Farmington Hills MI real estate agent, you can feel confident that you won’t offer more than the house is worth or more than you can realistically afford to pay for it. Your agent will give you much-needed advice and also ensure that all decisions made are in your best interest. Bidding wars can be challenging to navigate, especially if you’re a first-time homebuyer. It’s vital to do your research so you have a clear understanding of the process, the market, and the home you are interested in purchasing.

Waiving contingencies 

In a competitive market, buyers will often waive certain contingencies to make their offers more attractive to sellers. Contingencies in home buying contracts allow a way out for the buyer should there be unexpected issues with financing or defects with the property. By waiving certain contingencies—for example, your financial contingency (an agreement that the buyer will only buy the property if they get a large enough loan from the bank) or your inspection contingency (an agreement that the buyer will only buy the property if there aren’t any deal-breaker issues found during the home inspection) – you show just how serious you are about moving forward with the deal. 

Waiving contingencies can make an offer more appealing to the seller, but it can also be a risk for the buyer. If for example, you waive your inspection contingency and then find out during the inspection that the home has serious plumbing issues, you may have to sacrifice your earnest money to back out of the deal or pay for repairs once the title has been transferred. Although waiving one or more contingencies in a multiple offer situation could be the extra push needed to get the house you want, it ultimately comes down to how much risk you feel comfortable with.

There a number of different contingencies, but the three most common include the financing contingency, inspection contingency, and appraisal contingency: 

1). Financial contingency

One common strategy used to make an offer stand out from the competition is to waive your financing contingency. In a home sale and purchase agreement, financing contingency refers to a clause that states the offer is contingent upon the buyer securing financing for the property – a standard feature in most Offers and Purchase and Sales Agreements. If your mortgage is not approved for the amount of financing you need, the seller agrees to refund your deposit in full.  During a bidding war, waiving your financing contingency sends the message that you are confident you will get the loan no matter what.

With a clear picture of your finances and enough money in reserve, you can safely waive the financial contingency with minimal risk on your end. Of course, if you are paying for the home in cash, then financing is not an issue and you can exclude the financing contingency in your offer. Not only are you eliminating the need for a third party to get involved in the deal, but you’re also showing the seller that you mean business. There is a risk any time a lender has to get involved, so when you eliminate their presence, you eliminate the risk. 

2). Inspection contingency

In a standard real estate agreement, the buyer retains the right to back out of the contract if they find unacceptable issues with the property. This contingency allows the buyer to hire a home inspector to survey the home for damages before the deal closes. If major issues are discovered during the inspection, the buyer has the right to negotiate with the seller for repairs or back out of the deal. One safe way to waive your inspection contingency is to have a pre-inspection done on the property before ever making an offer.

If the report doesn’t reveal any serious issues, you can confidently waive the contingency with minimal risk. When a seller accepts an offer, their home is off the market. In a competitive market, the last thing the seller wants is to be waiting for an extended period of time for the inspection to happen. Make the contingency period no more than a week. If the home looks well maintained visually, it may be worth the risk to waive the inspection if you are confident you want the house no matter what. To minimize risk, the decision to waive inspection contingency should be made carefully and with the guidance of your real estate agent. 

3). Appraisal contingency

When an offer is accepted on a home, the lender will come out and appraise the property to determine its value. Mortgage lenders use appraisals to calculate the loan amount they will give buyers. If the appraisal falls short, the appraisal contingency lets the buyer cancel the contract rather than make up the difference in cost themselves.  If you waive this contingency, you are still responsible for purchasing the home if the loan does not work out – or you may be able to back out of the contract but lose your deposit. It is also possible the seller will decide to sue you if you break the contract.

That being said, more buyers these days are willing to waive appraisal contingencies to enhance their offer in a bidding war. Compared to a fully mortgage-contingent buyer, waiving the appraisal contingency is more attractive from the seller’s point of view because they have more certainty the deal is going to get done no matter where it appraises at. 

Waiving contingencies risk: Yes, there can be risk associated with waiving contingencies, but depending on the circumstances, a buyer might be in a position to do so.  When considering whether to waive contingencies, speak with your estate agent. They will be able to help you decide what’s best for you and help you determine if you are in a position to take on that risk. Your Farmington Hills MI REALTOR’s knowledge of normal practices and probable outcomes in the local market will make your offer more likely to succeed.

Up your offer

If you are set on winning a bidding war on a Farmington Hills MI property, your best bet is offering more money than the other buyers. Upping your offer doesn’t have to mean paying another ten thousand dollars or more. Sometimes, going up just a few thousand dollars can make all the difference between winning the bid on a property or losing out on it. One important thing to keep in mind when upping your offer is that just because you are ready to pay more for a house doesn’t mean the bank is. When it comes to your mortgage, you are still only going to be able to get a loan for up to what the house appraises for. So, if your higher offer gets accepted, that extra money might be coming out of your own pocket.

Pay in cash

This obviously isn’t going to apply to everyone, but if you have the cash to cover the purchase price, offer to pay it all upfront instead of getting financing. Not only are you eliminating the need for a third party to get involved in the deal, but you are also showing the seller that you mean business. Sellers typically prefer dealing with a buyer who can pay cash because they don’t have to worry about a potential buyer actually receiving the financing they need. There’s a risk any time a lender has to get involved and when you eliminate their presence, you eliminate the risk. According to a Redfin analysis of home sales over the past two years, buying a home without financing boosted a buyer’s chance of winning a bidding war by 97%.

Include an escalation clause

An escalation clause can be an excellent asset when trying to win a bidding war. An escalation clause is an addendum to your offer that states you’re willing to go up by X amount if another buyer matches your offer. More specifically, it dictates that you will raise your offer by a specific increment whenever another bid is made, with a cap. if winning a bidding war on a home is the end result you are looking for, there’s nothing wrong with putting it all on the table and letting a seller know how serious you are. Work with your agent to come up with an escalation clause that fits with both your strategy and your finances.

Be flexibility

The date of possession is often an important part of the offer in a multiple bid situation. Typically, the closing period lasts 30, 45, 60, or 90 days. Customizing the length of the closing to suit the needs of the seller can often help clench the deal over a higher offer. Sellers almost always want fast closings, usually 30 days. If the seller needs to coordinate selling with buying another home, or moving in a short amount of time, giving them the close date they want can often be the difference in getting the house or not.

If the seller needs a rent-back, you can offer to allow them to stay in the property after the close of escrow. Depending on the circumstances, you might charge them what your PITI (principal, interest, taxes, and, insurance) payment is or the local market rent rate. You can even consider giving it to them to enhance the terms of your offer, depending on the situation.

The takeaway

Bidding wars can be challenging to navigate, especially if you’re a first-time homebuyer. It’s vital to do your research so you have a clear understanding of the process, the market, and the home you are interested in purchasing. Finding experienced representation is the best way to ensure a smooth and successful transaction in a multiple offer situation.  If you are a first-time buyer or even a seasoned buyer, you should seriously consider working with a qualified Farmington Hills MI real estate agent you can trust, and carefully listen to their advice.

 

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