Whether it’s St. Patrick’s Day or not, your clients will need a little bit of luck to get the home they really want. That’s especially true if they find themselves in the middle of a bidding war.
Many market experts had predicted that home prices would decelerate this year, and home inventory would increase, making it at least a little easier for your clients to find and afford a home in 2022.
Fannie Mae had predicted that the median existing-home price would climb 7.9 percent this year. Now, Fannie Mae has adjusted its forecast to say that jump will come out to an 11.2 percent year-over-year price increase.
If home prices rise another 11.2 percent, that will mark a deceleration from the current growth rate. But that wouldn’t exactly be the relief home shoppers were hoping for this year. You know what that means for your clients dead set on buying a home in 2022, right?
Yep – a bidding war. And it’s already happening.
According to Redfin statistics, 70 percent of homes for sale in January 2022 ended up in a bidding war. That’s up from 67.7 percent in December 2021 and 61 percent in January 2021. That’s the highest rate since April 2020, when Redfin began recording this data.
So, with a bidding war likely for at least some of your clients, we recommend that you do what you can to help them navigate the roller coaster that comes with it.
In addition to making sure they understand and expect a competitive process, you can suggest how they can set themselves up for success. If they follow some of these tips, they’ll be more than lucky to have you in their corner.
Some of your clients will get preapproved anyway. But some don’t understand its value or that they can get approved even before they start looking for homes. In a competitive bidding situation, preapproval is absolutely essential.
Prequalification doesn’t give buyers enough clout because it doesn’t show that the lender conducted a high level of due diligence — such as checking earnings and doing a comprehensive credit check – that a preapproval would require.
Include an Escalation Clause
Once they know the maximum amount they’re willing to bid, they can include an escalation clause in the purchase offer to ensure that they can instantly counteract any other bid. An escalation clause allows them to increase their bid up to a specified amount to avoid being outbid by another buyer.
For instance, if a home is priced at $250,000 and your client knows they may get into a competitive bidding situation, they could offer $255,000 and agree that they’ll beat any other bids by $5,000 up to whatever their limit is. It’s the seller’s decision to accept this clause, but it shows that your client is serious about closing the deal.
Offer to Pay in Cash
Like most purchases in life, if our client can pay cash for a home, that’s the best-case scenario. Submitting an all-cash bid will give them a significant advantage because they can eliminate the possibility of a mortgage falling through before closing. Buying with cash will also make the process go faster, which a potential seller will appreciate, too.
Even if your client can’t cover the entire purchase price in cash, they could agree to a larger down payment that would increase their mortgage approval odds and make their bid more attractive than the competition.
Remove Some or All Contingencies
The home buying and selling process can be complicated and time-consuming. So anytime your client can make things happen faster, it may benefit them while also making things easier for the seller.
One way to prevent a potential deal from falling through is for your client to remove all or most contingencies, which are potential deal-breakers. The seller wants to sell, so they often prefer the path of least resistance.
If your client is willing to waive an inspection or other common contingencies that must be met before your client agrees to buy, the seller might be more likely to put your client at the top of the list when it comes to multiple bids.
Be Flexible on the Move-in Date
Sometimes, your client’s move-in date isn’t flexible. But if your client is a first-time homebuyer or someone who has already sold their previous home, they may have some flexibility.
That’s great if a seller needs more time to move out because of construction delays or until they close on their next home. Your client could buy the home, rent it back to the former owner for a few weeks or months, then move in later. This hospitality could be enough for the seller to give you some priority over the competition during a bidding war.
Lambert, L. (2022, March 11). The housing market frenzy can’t go on forever. Fortune. Retrieved March 15, 2022, from https://fortune.com/2022/03/11/housing-market-prices-frenzy-will-pass-not-this-spring/
Musinski, B. (2021, August 18). Win a bidding war: How to get the House you want. Forbes. Retrieved March 15, 2022, from https://www.forbes.com/advisor/mortgages/bidding-war/
Walter-Warner, H. (2022, February 24). Home bidding wars hit record high in January: Redfin. The Real Deal New York. Retrieved March 15, 2022, from https://therealdeal.com/2022/02/24/bidding-wars-hit-record-high-in-january/
Katz, L. (2022, March 1). January was the most competitive month on record for homebuyers. Redfin Real Estate News. Retrieved March 15, 2022, from https://www.redfin.com/news/real-estate-bidding-wars-january-2022/