Tips For Winning A Bidding War On A House

Imagine that you’ve been shopping for a home and you finally find the perfect one. You make an offer, only to find out that another potential buyer has a bid on it, too. Suddenly, you’re in the middle of a bidding war on a house.

Plenty of buyers have found themselves in this very situation. When housing demand exceeds housing supply, it creates a seller’s market. And in this competitive environment, many homes become the highly sought-after objects of bidding wars.

Just because other buyers are bidding on the same home doesn’t mean a seller will never accept your offer. Learn the steps you need to take to make your offer stand out and improve your chances of winning a bidding war.

What Is A Bidding War?

A bidding war is a real estate term that describes a situation where multiple buyers make offers on the same property. The seller has to decide which offer to accept. If the offers are similar, the seller may ask prospective buyers to increase their offers to outbid each other.

One of the most important steps of buying a home is making an offer when you find a home you want to buy. If one or more prospective buyers are competing to buy the home that piqued your interest, you should accept the reality that you’re in a real estate bidding war.

There’s no doubt that bidding wars benefit sellers and often result in them getting offers far above their original asking price. Bidding wars have become increasingly common since 2020 because of high housing demand and relatively low housing supply, resulting in a seller’s market.

How To Win A Real Estate Bidding War

The prevalence of bidding wars has likely discouraged a growing percentage of prospective buyers. Fortunately, there are plenty of ways to land the home of your dreams and increase your odds of winning a bidding war.

1.   Get Preapproved For A Mortgage

Whether you expect to end up in a real estate bidding war or not, mortgage preapproval is one of the most important steps of the home buying process. Getting preapproved for a mortgage sends a clear signal to sellers that you want to buy their home – and you have the financing to back up your offer.

Preapproval improves the odds of your offer getting accepted. Make sure your lender explains how they approach the preapproval process and discusses the likelihood of final approval for your loan when it’s time to close on your new home.

Finally, a preapproval will give you a better idea of how much home you can afford. The last thing you want is to waste precious time putting an offer on a home that’s way above your home buying budget.

2.   Make A Competitive Offer

For a seller to accept your offer, it must stand out from the competition. Unfortunately, there’s no real way to know what other bidders offer. So, when you make an offer on a house, consider bidding above the asking price to stay competitive. A lower offer will likely be rejected.

An experienced real estate agent can be a huge asset with this step of the process. They can help evaluate the real estate market and determine whether a home is fairly priced. Your agent can advise you on how much to offer above asking to remain competitive.

Keep your budget in mind before you make an offer above the asking price. You need to feel certain you can afford the larger amount you’re bidding.

3.   Pay In Cash

Many prospective buyers can’t make a cash offer on a house. But if you can pay in cash, it’s worth considering. All-cash offers can be attractive for sellers partially because an all-cash deal eliminates much of the waiting that can happen with mortgage approval.

If you can’t afford to pay in cash, don’t worry. There are other ways to make your offer a bit more tempting, including offering an earnest money deposit or making a larger down payment. These strategies, and others, can signal to a seller that you’re a serious buyer.

4.   Limit Or Waive Contingencies

A contingency is a clause in a purchase agreement that allows you to walk away or renegotiate your deal based on an agreed condition(s). This can include the home inspection revealing major issues, your home failing to sell or an appraisal that doesn’t meet your expectations. Plenty of bids are contingent offers.

One way to make your offer more attractive is to drop the contingencies. To make sure you understand what not including certain contingencies can mean, let’s look at some examples:

Waiving The Home Appraisal Contingency

If you waive the appraisal contingency and the appraisal is lower than expected, you’ll have to bring the difference between the appraised price and the agreed purchase price to the closing table in cash. If you have extra savings, this may be one way to give yourself an edge over the competition. Just be careful not to stretch your budget too thin – you still need to make a down payment and pay closing costs.

Waiving The Home Inspection Contingency

It may be worthwhile to consider dropping the home inspection contingency. While you should still get an inspection to identify what potential issues may come up later on, you don’t have to make the sale contingent on the inspection results. The contingency may make a seller pass on your offer if other buyers have waived it.

But, just remember that contingencies protect you as a buyer. Dropping them from your offer may result in considerable out-of-pocket costs, like paying the difference if the appraisal comes in low or spending a lot of money to replace a roof. You should be aware of this possibility before making a “clean offer.”

5.   Add An Escalation Clause

Including an escalation clause is another helpful tactic in a competitive bidding situation. Let’s say you put in an offer on a $310,000 house. You can add a provision to your offer that indicates you’re willing to pay $1,000 above any offer up to $320,000. That way, your bid doesn’t go above your absolute best offer, but you don’t overpay because your first offer isn’t a super high bid no one is likely to match.

This makes the seller happy as well. Although they likely researched their home’s value before setting their asking price, sellers are usually pleased to get more than the list price. The good news is that for the escalation clause to go into effect, the seller must provide proof of the competing offer so you know you aren’t overpaying.

6.   Be Flexible On The Closing Date

Sellers might prefer offers that are flexible on the closing date. They may choose to close on a particular date for many reasons. A family with children may request to move up the closing so their children can start at a new school. Or they may want to push back the closing so their children can finish their school year.

Whatever the seller’s reason for a particular closing date, they’ll be more likely to accept an offer that provides the flexibility they need.

Real Estate Bidding War FAQs

Have more questions about bidding wars? These answers will come in handy when you’re preparing to win a bidding war on a house:

How do I avoid a bidding war when buying a house?

Some strategies you would use to win a bidding war can also be used to avoid a bidding war. As an aspiring homeowner in a hyper-competitive market, you should always present yourself as a serious buyer and approach sellers with your strongest offer.

 

Besides making an all-cash offer or waiving contingencies, you can also avoid bidding wars by looking at properties outside real estate hot spots.

How much do I offer in a bidding war?

In a real estate bidding war, it’s common practice to bid 1% – 3% over the asking price for a home and then $1,000 or more over the highest bid. Keep your budget in mind and always use an experienced real estate agent to help you navigate the bidding process.

When should I walk away from a bidding war?

It can be easy to forget in the midst of battle, but it’s important to know (or remember) your limits in a real estate bidding war. Here are some situations that may signal it’s time to wave the white flag of surrender:

The Bottom Line

With high housing demand and a relatively low supply, home sellers are reaping the benefits of a seller’s market. Many home sales have erupted into bidding wars. And bidding wars usually mean higher prices.

 

Making your offer stand out is the best way to win a bidding war against multiple buyers. And remember, the first step to winning a bidding war is to begin the mortgage approval process. That way, you can approach a seller with your strongest offer and show them you’re a serious buyer.