We all hear stories of bidding wars on houses. In some markets, houses sell for above asking price consistently. If you do a little online research, you may find a lot of advice like waiving inspections or getting your family members involved so you can pay in all cash. All these factors could be necessary to win a competitive house in some markets, but how about Harrisonburg and Rockingham? Let's break down the different factors.
Is Cash King?
Here is why people say cash is king. If you pay for a house in cash, you don't need to follow the bank's guidelines to buy a house. In really hot markets, houses sell for more than asking price and the appraisals can't keep up to the market demand. So, by offering a seller a deal in cash (with no appraisal contingency added), the sellers know that you will be able to buy the house at what you are offering.
Another big factor is financing takes longer than cash deals. You can close on a house in two weeks with cash deals. Most of the time, getting a mortgage will take 30-45 days.
So, do you need to bring cash to close on a competitive house in our market? Most of the time, no. It's not unheard of to have cash deals in the area, but prices are not going drastically above appraised value, therefore, waiving appraisal contingencies is not common practice.
So How Do You Win Your Dream House?
For the most part, the highest price will win. The best way to secure the house and not give too high of an offer is by doing an escalation clause. An example of an escalation clause looks like this: John Smith offers $200,000 on 1234 Main St but John is willing to go $10k above the seller's offer price.
In the event of multiple contract presentations for the property located at 1234 Main St, John's offer increases by $500 above any alternative offer, providing that the maximum purchase price shall not exceed $210,000. If Seller receives an offer from a third party which is higher than the offer contained in this contract, Seller will provide John (likely via his agent) with a copy of that higher third party offer. Seller reserves the right to delete the name of the third party offeror to protect privacy. Seller represents and warrants that the third party offer is bona fide.
Aside from purchase price, there are other factors that can greatly help you win a competitive house.
The more money you put towards a down payment, the more secure of a buyer you are in the eyes of the seller. The loan programs that let you put little to no money down are excellent programs, but they can often come with difficult stipulations. For example, you can't have cracked windows on a house if you use an FHA loan. Also, having a full down payment can be an indication that you are financially secure and there won't be any insurmountable surprises with your credit.
Another factor that ties into financing is how long will it take you to get the loan.
If your offer is the same as someone else's but you are able to close faster, you may win the bid. Being flexible on timing is important because if the seller has to find another house to move into, a fast closing will only stress them out. On a vacant house, faster is generally better and the main factor is getting the mortgage. In a pinch, I can get you financing faster than 30 days. Contact me directly to talk more about how to get the fastest financing possible.
The less contingencies you have the stronger the offer will be. This mainly refers to the home inspection contingency since we already addressed the appraisal. That being said, if you are not an expert, I do not recommend you waive your home inspection contingency. In this market, it is very common to get a home inspection and this will likely not cost you the bid.
Offering higher amounts of earnest money helps show how serious you are about the house. In some markets, people offer $60k as earnest money. In our market, $500-$2,000 is more common. If you want a full description on earnest money and how I would help you protect it, click here.
If you have any other questions about how to compete in a bidding war, call or email me.