Whenever you think about mortgages, you probably imagine that you need a seriously exceptional credit…
After the housing and mortgage crash that began in 2007, it has taken years for the housing markets in most areas to return to pre-crash price levels. Now that they have, there are some other problems that are making it tough for buyers to find and purchase the home they want.
What is Causing Many Bidding Wars?
Very few markets have returned to pre-crash inventory levels. There are a number of reasons for this, including:
- New home construction is still lagging behind normal levels. Builders are cautious, as they do not want to tie up money and pay interest costs to build homes that may not sell due to low interest on the part of first-time homebuyers.
- Baby boomers in large numbers are sitting on their homes rather than listing them. Some are doing so because they want to wait for higher prices. Others still have their millennial generation children living at home, so downsizing isn’t possible.
- High student debt levels and lower compensation for first jobs out of college are keeping millennials away from home buying.
Those are reasons for low inventories of homes for sale. Fewer homes available and growing demand are causing
bidding wars to emerge again in many markets.
Winning a Bidding War
Homebuyers who are having to compete for homes must get into the shoes of the seller to gain an edge in a home bidding war. Sure, the buyer(s) should continue to understand what they want in a home and how much they can afford. However, in tight markets, buyers who understand what the seller wants and needs are in a better position to win a bidding war.
- Sellers want a fast sale, so they often give preference to lower offers that are all-cash, as they close faster.
- They want to close, not end up with a failed deal due to buyer mortgage problems.
Sellers, in short, want to get the home sold, not have to go back to the market after working a failed deal for 30+ days. For a buyer to gain an advantage in this situation, these are the tips experts are giving them:
- Get as strong of a pre-approval as possible, or if possible get a full approval to submit with the offer. This reassures the seller that the deal will close.
- While the interest rate is important for affordability, it isn’t important to the seller, and shouldn’t be the decisive factor if the lender with the lowest rate isn’t going to perform efficiently and get the deal done quickly.
Working with a local lender that understands the area market and comes highly recommended by real estate agents, can be an advantage. Real estate professionals want the same thing, a sure and fast closing, so they like to work with lenders that make it happen.
As with any contest, going in with more information and an advantage can make the difference between closing on the best home or moving on to a bidding war on the second choice.