Home Buying Wars
By Jean Sherman Chatzky
June 1, 2000

Have you tried buying a home lately? It's brutal out there. Home sales hit a record in the first quarter of 2000, with 29 states posting increases from a year ago. But for every happy home-buyer, several defeated losers slink off empty-handed. Later Today financial contributor and Money magazine's editor-at-large Jean Chatzky tells you what you need to know when buying a home.

According to the National Association of Realtors, the inventory of existing single-family homes has dropped 45 percent, and this tight market is expected to last at least through the summer.

Rising mortgage rates will eventually slow things down, with every point increase pushing 450,000 people out of the market. But that's not enough to take the edge off completely.

Rising mortgage rates will eventually slow things down, with every point increase pushing 450,000 people out of the market. But that's not enough to take the edge off completely.

If you want to walk away victorious in a market like this, Money magazine staff writer Joan Caplin recently spent time researching the bidding process, and has identified four techniques to make your offer stand out.

Before you even get to the bidding stage, however, you need to prepare. That means learning how much nearby homes have sold for in recent months. You can do this by logging onto websites like domania.com, homepricecheck.com, or homeagain.com. Also, determine what your monthly mortgage payment will be, using a mortgage calculator like the one at hsh.com. With that information, get pre-approved for the largest mortgage you'll be able to afford and if your financing depends on the sale of your current home, line up a buyer before you look. Without rock-solid financing, you won't even be a contender.

Now, you're ready to bid. Here are four guidelines to help:

MAKE YOUR FIRST OFFER COMPETITIVE

Bid no more than 2 percent below the asking price. In a hot market, lowball bids mark you as a wannabe. Everyone worries about overbidding and it's true that houses are sometimes overpriced. But if homes are flying in your neck of the woods, and you want to be able to close quickly, go to 2 percent to 5 percent above the asking price.

Once the contest is underway, the same principle applies. Bids that are too small aren't going to cut it. A piddling hike over a competing bid-anything less than 1 percent of your initial offer - guarantees another round of bidding and gives the seller the impression you're stretching your finances to the limit.

BE FLEXIBLE

Sometimes what's really on the sellers' minds isn't getting an extra $5,000, but the timing of their impending move. So you can sometimes sweeten your offer by volunteering to work around their needs.

If you find out a seller has to relocate for a new job, offer to close and move quickly. If the renovation of the seller's next home is falling behind, offer to delay the close. Sometimes the seller needs cash - but isn't ready to move. So offer to close and let the seller remain in the house temporarily under a short-term lease.

WAIVE INCIDENTAL EXPENSES

In a seller's market, fighting over incidental expenses could leave you out of the final deal. Buyers sometimes bid high then try to recoup some of the money they're spending by asking sellers to pay for small incidentals, such as home warranties, closing costs, etc. They forget that on a hot property, nickel-and-diming can kill a deal. One seller we spoke to received eight serious bids on her home within eight hours. Her home was initially priced at $350,000, and she closed the bidding at $370,000 - even though the price probably would have gone even higher. Why? There was a right-of-way problem with the driveway, and the high bidder was willing to deal with it. Everyone else wanted to change the deed.

RESTRICT YOUR OFFER

Selling a home is just as anxiety inducing as buying one - especially if the seller's already committed to another house. Even with a bidding war underway, most sellers prefer knowing they have a sure thing. You can sometimes take advantage of that by conditioning your offer on getting a yes or no within 24 or 48 hours.

Jean Chatzky is a financial contributor for the "Later Today" show and editor-at-large at Money magazine. Information provided courtesy of Jean Chatzky and Money magazine copyright © 2000. All rights reserved.