Bidding wars: common mistakes buyers make
Multiple offers on a home sale are still common, and buyers may get caught up in the competition and make some mistakes in the process.
One common mistake: buyers who are willing to empty their bank account trying to win.
“I’ve had buyers who want to bid all the money in their budget in order to win a bidding war,” Lily Lei, a real estate professional with RSVP Real Estate, Powered by ERA, in Seattle, told realtor.com®. “I counsel them away from it. The house may require tens of thousands of dollars worth of repairs immediately, like a new roof or new plumbing. They would have no money left to cover these essential repairs.”
The bank’s appraisal may also come in lower than the offered price. The buyer then may be on the hook for a higher down payment to make up the difference.
Lei advises her clients to hold back between 10% to 40% of what they can afford. That may mean they can’t get the house they want, but it doesn’t put them at financial risk, she says.
Another common problem real estate pros report buyers making in bidding wars: bidding with no contingencies. Buyers are waiving home inspections and their ability to walk away when an inspection reveals a major flaw with a home.
“If buyers want to be competitive in this market, they need to compromise on a lot of things,” Jared Blank, a managing partner of The Agency in Denver, told realtor.com®. That said, when a buyer’s offer is accepted on a home that is in need of repairs and falling apart, it’s no win at all, Blank says.
He recommends instead bidding at a comfortable price within the buyer’s budget and looking for compromises on other components of the offer, like the length of the escrow and the down payment.