Advice for Sellers and Homebuyers

The bottom line is that strategic home pricing can effectively sell a home. Some experts even recommend listing homes at 10-percent below market value, with anticipated returns netting sellers 10-percent more than the current value. However, while this is beneficial for sellers, buyers should take note: if they don’t want to participate in a gruesome bidding war, they may want to take a step back.

While some sellers worry that setting a slightly less than average market price will detour buyers, the opposite is true. It actually attracts more buyers, thus driving a competitive bidding war. Some experts even go so far to say that if a home doesn’t receive multiple bids, then it wasn’t originally underpriced.

How does a buyer win a bidding war? Before embarking on a bidding war journey, buyers should set a maximum price they are willing to pay, helping to ensure they stay with their means and budget, instead of getting caught up in the competitive process. This also allows buyers to feel as though they gave a bid their highest and best offer.

Instead of simply the highest price, sellers will analyze the best offer. This means that if someone is more accommodating with their move-out schedule, is willing to rent back for a week or proceed to a quick closing. Below are some additional tips for buyers involved in bidding wars:

• Cash – Sellers adore all-cash offers, which means they don’t have to deal with today’s sticky bank financing issues and red flags.
• Start Ahead – Buyers should begin the financing process approximately four months ahead of time. This gives adequate time to review credit reports and pay off debts.
• Pre-Approved – Having a pre-approval from a bank is far better than a pre-qualification because it means that the bank has actually pre-approved a loan, which means that credit scores and incomes are both verified.
• Down Payment – When facing all-cash offers, the next best bet is a minimum of 20-percent down with a bank pre-approval letter.
• Paperwork – If offering all cash, attach proof of funds to the offer, as this lets a seller know a buyer is serious about purchasing the home and/or property.
• Highest and Best – When entering into a bidding war, it’s best for buyers to generate a highest and best offer first, or they may very well find themselves cast from the bidding war immediately.
• Contingencies – Keeping contingencies on a short-time frame is beneficial, which includes financing approval and inspections. However, removing all contingencies is not beneficial to the buyer, as this forgoes any septic, well and home inspections.
• Escalation Clause – Always include a cap amount, or a buyer could be in for some serious sticker shock. This document should never be used unless a buyer understands the full ramifications of how an escalation clause works.

Better Than Loans is a direct lender and offers bridge loans, commercial building loans and apartment building loans.