The Los Angeles real estate market has become a hot commodity. The inventory of homes has been slow to recover from the real estate bubble and many builders quit the business, or have been cautious in reentering the residential real estate market. They may have opted to build rental properties, reacting to the strength of that market.
This may leave many buyers in the unpleasant predicament of having to engage in bidding wars over desirable properties. Stories abound of buyers who have lost property after property. This frustrating and expensive, as you have to spend the time and effort identifying neighborhoods and properties where you would like to live, only to have your times wasted and your emotions jostled, as you have to begin the attempt all over again.
It can also be expensive in real money as prices continue to escalate. A six-month delay in securing a property could mean tens of thousands of dollars in price increases for your eventual property.
To prevent losing the bidding war, it is important to have all of your legal and financial fundamentals completed before you begin. If you can afford an all cash deal, you may be able to win a home at a lower price, as your all cash transaction will be faster and less likely to fail because of mortgage origination issues.
If cash is not an option, you can go beyond merely being pre pre-qualified for your mortgage. You can have your mortgage pre-underwritten. In this process, the lenders complete all of their due diligence by investigating your income and assets in advance.
In addition to having your financial and legal “homework” done in advance, you need to be aggressive in searching properties, to ensure you can make an offer the same day a property arrives on the market.
You can also be willing to offer more that the asked for price, or offer a built-in escalation clause, that automatically increases your offer. You may lower the number of contingences that would allow you to get out of the contract.
However, before you do any of this, you should have a careful discussion with your real estate attorney as to the implications of these matters. While finding a home and winning the bidding war is the goal, you do not want your victory to by a pyrrhic one.
Source: CNN.com, “How to win a bidding war on a home,” Les Christie, June 13, 2014