How To: (Really) Win a Bidding War

It’s a realty agent’s dream: bidding wars are back! At least, that’s the hyperventilation du jour. From Boston to Los Angeles, the news from the front lines is that house-hungry buyers can’t wait to get their hands on the few move-in-ready properties popping onto the market. While obsolete, dingy properties linger on and on, houses that are well priced and in great shape supposedly are sparking frenzied price competition.

Is this true or just the result of fevered agent PR?

How to Win a Bidding War

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Probably, it’s both. Bidding wars do seem to be occurring a bit more often (though there is only anecdotal evidence, so it’s impossible to know for sure). But don’t confuse a small wave of bidding wars with a shift in the deep currents of this no-growth real estate market. With over 3 million properties still in the foreclosure pipeline, there will be drag on prices for years to come.

Meanwhile, don’t let a bidding war distract you from getting a fair price on a good house, one that includes the amenities most important to you. Here’s how to stay above the fray:

• Top off your down payment. You can’t negotiate effectively for any house if you can’t slap down a contract for the agreed price. Nail down your financing early, putting down as much as you can to show your lender you are serious.

• Track the property value trends for the neighborhoods you are considering. Don’t rely on agents’ data, which may not include foreclosures. Instead, use the House Price Index at the Federal Housing Finance Agency. This data tracks long-term trends and is widely considered one of the most reliable measures of home values.

• Build a case for the likely market value of the house. Does the new bathroom justify an asking price $40,000 above similar neighboring houses, when it probably cost about $17,000?

• Know your limits and stick with them. Agents love the ‘bidding war’ news story, because it stirs up the fear of losing a competition. Detach yourself from the hysterics and recall those millions of houses either in foreclosure or being held from the market while owners wait for prices to firm up. Currently, 11% of all homeowners would like to sell—if the market was better. Chances are good that an equally good house will come on the market soon.

For more on buying and selling homes, consider:

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