79% of recent buyers lost the house they wanted. 3 ways to prevent this from happening to you

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Bid wars can be brutal. This way you avoid losing one.


Important points

  • The limited housing stock is forcing buyers to quarrel over limited properties for sale.
  • With the right strategy, you can emerge victorious from a bidding war.
  • An escalation clause, a pre-approval letter, and a great real estate agent can help you get the home you want.

There’s a reason so many people have been struggling to buy homes since the pandemic began: The real estate market has been starved for inventory, and that’s forcing home buyers to compete with each other to an extreme degree.

In a recent HomeAdvisor poll, 79% of people who bought a home during the pandemic lost a bid on at least one property during their search. If you want to avoid a scenario where you end up losing in a bidding war, here are three important steps you should take.

1. Add an escalation clause to your offer

A price escalation clause in a real estate offer means that you, the buyer, are automatically prepared to increase your house offer if the seller receives a higher competing offer.

For example, you might be interested in buying a home that is listed for $500,000 and make an offer of $515,000. You could then include an escalation clause in your offer stating that you are willing to take on competing offers up to $550,000. That way, if another buyer comes in and bids $525,000, you won’t automatically lose.

Although an escalation clause could help you win a bidding war, you need to be careful when including one in your bid. You don’t want to get stuck paying a price you can’t really afford — and having to deal with a larger mortgage payment as a result. But if you carefully go through the numbers beforehand to see what you can swing, you’ll know what limit to set.

2. Walk in with a mortgage preapproval letter

A mortgage pre-approval letter sends an important message to sellers that you are a serious buyer who has the financial strength to afford a home at a given price. The last thing a seller wants is for their real estate deal to fail because their buyer can’t get a mortgage. By providing a pre-approval letter, you help mitigate this risk and thereby encourage a seller to work with you.

To be clear, a pre-approval letter doesn’t actually guarantee that a mortgage lender will approve you. But if your financial situation does not deteriorate between the time this letter is approved and the time you submit your mortgage application, there is no reason to believe your home loan will not go through.

3. Work with an experienced real estate agent

Enlisting the help of an experienced real estate agent could help you avoid a bidding war in the first place. That’s because an agent may be able to help you get your offer just right from the start.

Going back to our example, let’s say you want to buy a home that’s listed for $500,000. You might think that an offer of $515,000 gives you a good chance of getting your offer accepted, but a real estate agent might advise you to start at $525,000 instead. If the seller then accepts your $525,000, it could result in a lower purchase price than what you would have to pay after a bidding war.

Bidding wars have been a mainstay of the pandemic housing market and have undoubtedly been causing a lot of stress for buyers of late. If you want to avoid a scenario where you lose a house you’re interested in, use these three tips to increase your chances of success.

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