4 tips for handling a bidding war between homebuyers
Bidding wars have become commonplace in the Greater Boston housing market, and desperate buyers often offer to pay much more than the actual price of the home.
Bidding wars have become commonplace in the Greater Boston housing market, and desperate buyers often offer to pay much more than the actual price of the home.
A 2015 Greater Boston Association of Realtors (GBAR) report noted that over the course of the year, sellers saw offers on their condos that were 100.3 percent of their listing price.
In 2016, real estate professionals have seen a similar trend—supply just cannot keep up with demand.
According to a July 2016 housing report by Anthony Lamacchia, owner and broker at Lamacchia Realty, the average price of a Massachusetts home sold in July 2016 was quite a bit more than the average price in July 2015. The average sale price in July 2016 was $406,916, versus $387,964 in July 2015. There is just more demand than supply — the number of houses for sale in Massachusetts fell 13 percent from July 2015 to July 2016. Open houses have been packed, and brokers are receiving crazy offers from homebuyers.
“There are more buyers than sellers,” Lamacchia said. “When the buyer finds out someone else wants something, they are all of a sudden willing to pay more.”
Though it’s a challenge to navigate the world of bidding wars, Lamacchia has some tips for nabbing that winning bid:
Craft a letter
One of the easiest things you can do to get a leg up on the competition is to write the seller a letter explaining your sincere interest in owning their current home.
“When you see there is an elderly couple that raised their three children [at the home], you can write a heartfelt letter saying you were impressed how they raised their family there,” Lamacchia said.
Decrease contingencies
“If you can eliminate an inspection or mortgage contingency, then you should,” Lamacchia said. “It would increase the chance of getting [the home].”
Eliminating contingencies means you can close on the house you want faster, but you want to make sure you don’t compromise too much. Lamacchia said that the only way buyers should not get an inspection is if “they are 100-percent comfortable with condition of the house or wiling to risk finding out something is wrong with it after.”
Though in Massachusetts it is not required to get a home inspection, it is highly recommended in most cases, especially if it is an older home. There are many potent problems that would not be visible to the naked eye, such as mold or lead pipes.
Offer more than the asking price (but only if your offer is still within your budget)
It’s OK to get in a bidding war and agree to pay more than the house is worth. That said, Lamacchia emphasized that buyers must stay within their budget.
“If they get it, great. If not, find another house,” Lamacchia said. “Don’t start buying further than their means. They should not pay too much.”
Neda Vander Stoep, a real estate professional affiliated with the Coldwell Banker Residential Brokerage in Back Bay, also emphasized that homebuyers should be comfortable with their offers. Buyers not only need to think about the mortgage cost, but also all of the other hidden costs of a move.
“In addition to the purchase price and monthly mortgage payments, buyers should consider the down payment, closing costs, and property taxes to ensure that those costs are truly within their income and savings range,” Stoep said.
Be prepared
Though buyers should try not to make offers above their budgets, they should, in fact, be prepared to make an offer when the time is right.
“They should know what their budget is and get a mortgage pre-approval before they start their home search,” Stoep said. “This will help them throughout the search and purchase process and will reassure a seller that they are serious about a home purchase and qualified to buy their home. If they are planning to make an all-cash offer, they must have a proof of funds statement available, which stands in place of a pre-approval.”
When time is of the essence, having all of the documents in order could help a buyer entering into a bidding war. Another way buyers can prepare before making an offer is by determining what they actually want from their new home.
“It is helpful for buyers to distinguish between their absolute ‘must-haves’ from their ‘nice-to-haves’ so they know where they can compromise to meet their budget. They should also determine what locations and communities will work for them,” Stoep said. “At the end of the day, there are always compromises, regardless of your price range. No house is perfect, but you quickly learn what is important to you.”
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