Tips for Buying a House in a Competitive Market

In a competitive market, you might set your sights on a home only to find that there are 5 to 10 other offers on it. How do you handle the situation? Do you go in with a much higher offer? Waive all possible contingencies? Offer cash for the home? Write a meaningful personal letter to the homeowner? What are the best strategies for buying a house in a competitive market?

What is a Competitive Market?

In a competitive market, inventories are low, so buyers are competing against each other for available homes. Bidding wars and short timelines are common. Buyers may need to act quickly and decisively if they want their offer to beat out the others. Nerves can get frayed very easily, making it essential to stay grounded and remain realistic.

Prepare Before You Shop

A key step in buying a house in a competitive market is to be well prepared before you start house hunting.

Get Preapproved

In a competitive market, sellers want to know that you’re financially ready to buy a house. It reduces the chances that the buyer’s financing will fall through. To that end, get preapproved (not just prequalified) for a mortgage. With a preapproval letter from a trusted lender in hand, the seller knows that you’re qualified and ready to move forward.

Have Your Down Payment and Closing Costs Ready

Every seller wants a hassle-free closing, and being able to meet all the financial requirements paves the way for all parties. Don’t wait till the last minute to get your down payment and closing costs sorted out.

Assemble a Good Team

You’ll need experienced professionals to help you at all stages. Work with a real estate agent who is skilled at buying a house in a competitive market. The right agent will inform you about new listings as soon as they go live, craft a strong offer on your behalf, and negotiate terms that will appeal to the seller. Also, find a lender who is organized and responds quickly to inquiries. Plus, grab a real estate lawyer with a solid reputation.

Be Ready to Act Quickly

When you’re buying a house in a competitive market, homes sell very quickly. In that environment, you need to be ready to move fast when you see a house you want. Don’t wait to schedule a second showing. Also, don’t waste time assembling your paperwork – have everything ready to go beforehand. If you’re making the purchase decision with someone else, make sure they know what’s going on so they can make themselves available when they’re needed.

Submit Strong Offers

In a competitive market, sellers are often dealing with multiple competing offers. Make yours stand out by showing that you’ll make life easier for the seller:

• Limit your conditions where possible. It’s not always advisable to skip the home inspection, but don’t haggle over minor fixes.
• Be flexible on your closing date. Even if you have to live in temporary housing or you wind up with overlapping mortgages, it can be worth it to prioritize the seller’s preferences.
• Consider a cash-equivalent bid. It’s possible to use a third-party company that buys the home with cash on your behalf and then sells it to you when your mortgage financing is approved. This strategy can be expensive. However, a cash offer can be enough to convince a seller to choose your bid.
• Offer more earnest money to show you’re committed.

Think about including an escalation clause in your offer. These clauses state that you’ll outbid any competing offer by a set amount. When buying in a competitive market, an escalation clause keeps you in the running for the house without overbidding up front.

Have a Backup Plan

In a competitive market, there’s a good chance your offers won’t be accepted. It can be extremely frustrating, but it’s important to recognize that this is normal when multiple parties are bidding on the same property.

Even if you have an outstanding offer, keep looking at properties and be flexible about your “good-to-haves.” You may have to go outside your target area, but you might wind up discovering a neighborhood or community that you didn’t know about.