You’re in the market to buy a home, you’ve done all the necessary research. You’ve pounded the pavement and toured lots of places, and you’ve finally found the perfect home. But, there’s a catch: In order to purchase the house, you must first triumph in a bidding war; should you stay and fight (after all, you’ve put in a lot of effort to get to this point), or should you walk away and continue your search?
First let’s examine what a bidding war really is. A bidding war occurs when two or more buyers, who are interested in buying the same house, each make increasingly higher offers in an effort to become the new owner of the home. Typically speaking, bidding is swift which can result in potential buyers making rapid decisions without giving it as much thought as they normally might. This all leads to buyer’s remorse – something you’d like to avoid when purchasing your largest asset.
If you’re like most home buyers today, you’re probably thinking that bidding wars won’t apply to you. They are a thing of the past; nothing to worry about in light of the recent buyer’s markets we’ve all heard about. Just a few years ago the housing market crashed and although we are in recovery, things haven’t returned to pre-crash prices – so why on earth are buyers encountering bidding wars? Well, the answer simply boils down to inventory. While bidding wars may not be commonplace in every real estate market, those cities with plenty of jobs and lack of housing inventory are experiencing competitive markets.
What does all of this mean if you find yourself involved in a bidding war? Should you fight for the home or walk away? The answer is: it depends. Some buyers subscribe to the belief that they will never get involved in a bidding war because they somehow feel they will end up over-paying for a house. Don’t fall into this trap. Whether you are in a bidding war or not, YOU make the final decision about how much you are willing to pay for a house.
In order to decide if you should enter into a bidding war with another interested party, ask yourself these three questions:
What is my budget?
If you know how much you can afford, you’ll know whether or not you can financially support making a higher bid.
What is the true market value of the house?
Ask your real estate agent to help you determine the fair market value of the home. When you are armed with this information you will be less likely to pay an over-inflated price based on another bidder’s offer.
What is the house worth to You?
This is the hardest part; assigning a value to something as subjective as personal desire. Don’t let your emotions justify overpaying – that’s just bad business sense. However, take some time to evaluate the things that personally matter to you. Are you willing to pay a little more for good schools, a large yard, a third stall garage, a finished basement? Figuring out what features you are paying for in the new home will help you decide how high you’re willing to go with an offer.
Lastly, use common sense. Put your best foot forward with your first offer. Don’t let the fear of overpaying push you to bid too low because you’ll likely be outbid from the start. Don’t let the fear of losing to another bidder persuade you to bid too high or you could overpay. Follow the advice of your real estate agent to come up with an amount you are comfortable with and bid smart; make your first offer your best offer.
EDITOR'S STORY: This story was written by Monte Mohr, who has sold over 2,500 homes, making him one of America’s top Realtors for the last 25 years. This experience has given him a unique perspective on the Nashville real estate market where he can be found at http://www.tennesseedreamhomes.com. He is also a regular contributor of real estate advice to Nashville’s NBC affiliate station, WSMV Channel 4. To learn more about Monte Mohr’s experience as a real estate agent, to get free advice about your biggest real estate challenges or to request an interview, please contact him at Info@TennesseeDreamHomes.com