Bidding wars on real estate are very common in Naples and increasing your offer price isn’t always an option. Here are some other tips to help you win a bidding war.
Buying a Home / Chris
Contingencies in your purchase contract can be one of the scariest aspects to sellers. The inspection contingency may mean thousands of dollars in repair bills coming the seller’s way. The appraisal contingency could show the seller that the home is overpriced and the buyer may walk as a result. What about the financing contingency? The seller hates to take the home off of the market only to find out the buyer can’t qualify for financing.
One way to possibly win the sellers over and increase your odds of getting your offer accepted could be to waive some contingencies. Are you confident in the price you’re paying for the home? Perhaps you could waive your appraisal contingency. If you have an inspector ready to do their job, try and lower the days of the inspection period. Or, you could buy your property on an “As Is” contract to lessen the blow of an inspection contingency for the seller (more on this later). Have a talk with your agent about what contingencies can safely be modified or even removed.
What’s the difference? In its simplest terms, a prequalification will allow the lender to come to a contingent opinion based on your stated answers about your finances. A preapproval takes it a step further and the buyer turns in all of the financial documents to support the lender’s decision.
Clearly, the preapproval is a much stronger document so use that to your advantage! Take the time to have your lender do a full preapproval and send that preapproval letter along with your offer. Make sure your agent sells the other agent on the fact that there is very little risk that you will not get financing and set the seller’s mind at ease.
An escalation clause is a clever way of increasing your offer without having to guess whether you have the highest one when there are competing bids. The escalation clause sets the highest price you’ll pay and the amount you will increment over the next highest priced offer.
For example, if a home is listed at $350,000, a buyer may come in with an offer of $360,000 when the market is hot and they don’t want to lose the home. If the maximum amount you will pay is $375,000, you would ordinarily have to offer that amount and overpay! Instead, you could make an escalation clause where you bid up to $375,000 in $1,000 increments over the next highest bid. In this instance, the competing bid is at $360,000 so you would bid $1,000 over their offer and hopefully get the house at $361,000. That sure beats guessing and paying $375,000!
We have two main contracts we use in Naples. There is the standard “Sales Contract” and the often used “Sales Contract As Is.” In the standard sales contract, there is an entire section dedicated to inspections and what issues the buyer can ask for credit/repairs on. With the as is contract, a similar right to inspect is listed. This inspection is theoretically for informational purposes so it is less worry for the seller. The reason why I say theoretical is that what often happens is the buyer has inspections and then tells the seller, “I know we submitted an as is contract but there are some repairs that need to be made or we’re walking!”
That’s the one catch to the “As Is” contract—the buyer has 15 days to walk away for any reason. That is why the buyer has leverage after an “As Is” inspection.
Despite the ability for the buyer to walk away, sellers tend to look at the “As Is” contract as being the better bet and more of a sure thing to close.
This one is easy. In Naples, it is customary to put a good faith deposit down a few days after the contract is accepted and then another deposit 15 days after the contract’s effective date. If you plan on putting down a sizable deposit, perhaps consider increasing your deposits. High deposits show a commitment to the property and that gives the seller more confidence that she’ll see the closing table!
One of the big mistakes I see agents make is that they pick up the phone and say, “We’re submitting an offer and closing in only 30 days.” What are the odds my sellers want to be out in 30 days? Maybe they wanted to be out in a couple of months! When I am working with buyers that want to submit an offer, I call the listing agent first and ask, “When do the sellers want to close?” It is so common to hear that they’re not able to move into their new place for a while. That gives me a huge advantage when submitting an offer because we can close at a time that makes life easier for the seller.